ANNUAL REPORT & ACCOUNTS SEPTEMBER 2014

ANNUAL REPORT & ACCOUNTS SEPTEMBER 2014

>> WELCOME GOOCH & HOUSEGO PLC Gooch & Housego PLC is a global leader in Photonics for Industrial, Aerospace & Defence, Life Sciences and Scientific Research applications. CONTENTS Financial Highlights 01 STRATEGIC REPORT Chairman s Statement 2014 06 Chief Executive Officer s Statement 2014 07 Market Overview 10 Financial and Operating Review 18 Strategy Overview 22 Principal Risks and Uncertainties 23 GOVERNANCE Board of Directors 24 Directors Report 26 Audit Committee Report 30 Nomination Committee Report 31 Remuneration Committee Report 32 FINANCIAL STATEMENTS Independent Auditors Report Group 37 Group Accounts 38 Notes to the Group Cash Flow Statement 42 Notes to the Financial Statements 43 Independent Auditors Report Company 62 Company Balance Sheet 63 Notes to the Company Financial Statements 64 SHAREHOLDER INFORMATION Company Information 70 Notice of Annual General Meeting 71

GOOCH & HOUSEGO PLC FINANCIAL HIGHLIGHTS 01 Financial Highlights 2014 Revenue ( million) 70.1 +10.7% 2013 63.3 2014 2013 2012 2011 2010 Adjusted profit before tax ( million) 11.5 +18.6% 2013 9.7 2014 2013 2012 2011 2010 2014 2013 2012 2011 2010 6.0 23.0 44.7 8.2 9.7 Adjusted basic earnings per share (pence)* 35.6 +11.3% 2013 32.0 Total dividends per share (pence) 7.2 +14.3% 2013 6.3 Net cash ( million) 8.7 +52.6% 2013 5.7 2014 2013 2012 2011 2010 2014 2013 2012 2011 2010 2.0 (0.3) (1.9) (5.2) 32.0 28.2 61.0 70.1 63.3 60.9 10.8 35.6 5.2 5.0 11.5 38.0 6.3 7.2 5.7 8.7 Statutory profit before tax ( million) 7.9-4.8% 2013 8.3 Basic earnings per share (pence) 22.5-18.8% 2013 27.7 * adjusted figures are stated after excluding the amortisation of acquired intangible assets, gain on bargain purchase and exceptional items being acquisition costs, restructuring costs and impairment of goodwill.

02 FINANCIAL HIGHLIGHTS GOOCH & HOUSEGO PLC Industrial, Life Sciences and Scientific Research sectors. We provide complete optical system design, engineering and manufacturing services to the Aerospace & Defence, With a worldwide presence, ITAR compliant manufacturing facilities and the highest levels of QA certification, we have a tradition of providing photonic solutions for the most demanding applications and environments. OUR VISION IS To be the first choice supplier for the most advanced, innovative and reliable photonics solutions available; To be the technology leader in our markets and to reinforce this position everyday with the clients we work with and the projects we enable; and To push the boundaries of product capability and manufacturing efficiency.

GOOCH & HOUSEGO PLC FINANCIAL HIGHLIGHTS 03 REVENUE BY SECTOR Precision is at the heart of everything we do.

04 FINANCIAL HIGHLIGHTS GOOCH & HOUSEGO PLC MANUFACTURING Ilminster, UK (Head Office) Torquay, UK Glenrothes, UK Boston, Massachusetts, US Cleveland, Ohio, US Moorpark, California, US Orlando, Florida, US Palo Alto, California, US R&D Athens, Greece SALES OFFICES Hong Kong, China Nagoya, Japan Singapore Paris, France Cologne, Germany Hamburg, Germany Munich, Germany Seattle, Washington, US Washington DC, US GLENROTHES, SCOTLAND Acquisition of Spanoptic opens up new opportunities in Aerospace & Defence and supply chain and manufacturing partners in China CONSTELEX, ATHENS Constelex, which brings satellite communication expertise, has been absorbed into the STG FAR EAST Geographical footprint across the Far East, including China, Singapore and Japan Total Group Revenue ( millions) This has been another year of development and progress for the Company. Our initiatives to streamline the business and reduce costs are laying the building blocks for future growth to bear fruit in the coming years. With a solid order book and an encouraging pipeline of new products and opportunities, Gooch & Housego is well positioned to deliver further progress in FY15 and beyond. 70.1m (2013 63.3m) Revenue by Geographic Region ( million) USA 29.7m / 42.3% Continental Europe 14.4m / 20.6% United Kingdom 14.4m / 20.6% Asia Pacific and Other 11.6m / 16.5%

GOOCH & HOUSEGO PLC FINANCIAL HIGHLIGHTS 05 HISTORICAL REVENUE BY SECTOR ( millions) Industrial 2014 2013 2012 2011 2010 Life Sciences 2014 2013 2012 2011 2010 7.3 7.4 5.7 5.7 4.9 23.4 34.3 39.8 35.8 36.3 Aerospace & Defence 2014 2013 2012 2011 2010 Scientific Research 2014 2013 2012 2011 2010 4.1 4.3 3.9 3.6 5.1 11.3 18.8 17.3 15.4 15.4 OPERATING & STRATEGIC HIGHLIGHTS Profitable growth despite foreign exchange headwinds Operational efficiencies & volume drive margin improvement from 15.3% to 16.4% Commenced site rationalisation to reduce costs and duplication Statutory profit includes one off costs associated with the site rationalisation Implemented initiatives to drive operational excellence at all sites Two acquisitions completed & successfully integrated Systems Technology Group expanded to spearhead organic growth Strong cash performance delivering record net cash at year end Board succession plan successfully implemented 14.3% growth on full year dividend reflecting the strength of the balance sheet REVENUE BY SECTOR REVENUE BY CURRENCY Industrial ( millions) 39.8 57% Life Sciences ( millions) 7.3 10% $ USD 66.1% 46.3m 2013 74% EUR 7.5% 18.5m 2013 6% Aerospace & Defence ( millions) 18.8 27% Scientific Research ( millions) 4.1 6% GBP 26.4% 18.5m 2013 20%

06 STRATEGIC REPORT GOOCH & HOUSEGO PLC Chairman s Statement 2014 2014 was a year in which the strategy defined by the Board resulted in continuing success for your company. Growth was achieved in revenues and adjusted profit and, with a focus on cash generation, the company had a net cash balance of 8.7m at the year-end. Important elements of the Board s strategy include: moving up the value chain by developing and supplying increasingly sophisticated products and systems in collaboration with our customers; increasing Gooch & Housego s diversification to ensure that any one market sector does not dominate; operating in an efficient manner with appropriate resources and using our cash generation, banking facilities and potentially the market to make suitable acquisitions to complement organic growth. This defined strategy continued to be implemented in the year. The Systems Technology Group, which was established in 2013 to enable the group to develop more complex and valuable products and sub-systems won further contracts particularly in the Space sector and has grown both through acquisition and recruitment. Systems are being developed which in the medium term we expect to generate revenues and profit once the products reach the production stage. The Board believed that the group had too many operating sites leading to inefficiencies. With the objective of improving the situation, one small site was closed during the year and by the calendar year end the Gooch & Housego site in Melbourne, Florida will have closed with its activities being moved partly to our Ilminster site in the UK with the remainder to Palo Alto in California. Additionally, we continue to move production of some volume products to our lower cost manufacturing partner in the Czech Republic where we are comfortable that our traditional product quality is maintained. During the year, major changes were announced regarding the senior management of the company. In May Terry Scribbins, Chief Operating Officer retired from the company. On behalf of the Board, I would like to thank him for his many years of excellent contribution. His replacement, Alex Warnock joined the company in November and brings with him a wealth of relevant experience. At the end of the calendar year, after almost nine years in the role, I will be stepping down as Chairman, to be replaced by Gareth Jones who will in turn retire from the CEO role. Mark Webster, who has been a non-executive director of the company for two years, will take over from Gareth as CEO. I would like to welcome them both in their new roles and thank Gareth for his many years of leading Gooch & Housego into the success it is today. I would like to thank all employees for their support and efforts both this year and during my tenure as Chairman. Our success would not have been possible without their dedication. I have enjoyed my time with the company and believe, along with the Board, that with its technology, its employees and the new management team, the business is well placed to continue its growth into the future. Dr Julian Blogh Chairman As we enter our new financial year, the global economy remains supressed. In the US a recovery is continuing although defence spending remains under pressure. Nevertheless, given the increasing trend for photonic technologies to be deployed for target designation, range finding, navigation and countermeasures, the technology of Gooch & Housego is likely to be less affected by reduced budgets. Our order book entering our new trading year was an encouraging 18% higher than at the previous year end. 2014 was a year in which the strategy defined by the Board resulted in continuing success.

GOOCH & HOUSEGO PLC STRATEGIC REPORT 07 Chief Executive Officer s Statement 2014 Overview of 2014 Gooch & Housego made good progress in delivering its long-term objectives of sustainable growth and adjusted margin improvement in 2014. By combining organic and acquisitive revenue growth with initiatives to streamline operations, enhance operational efficiency and drive continuous improvement, the Company was able to meet its expectations notwithstanding a lacklustre trading environment and significant foreign exchange headwinds. Despite two acquisitions and increased investment in R&D net cash increased during the year. The two acquisitions completed during the first quarter have been successfully integrated. They have made a positive contribution to revenue and profit and brought valuable additional products, capabilities and customers. Spanoptic Limited ( Spanoptic ), based in Glenrothes, Scotland, was acquired in October 2013. Spanoptic s advanced lens manufacturing and infrared optics capabilities have substantially broadened Gooch & Housego s precision optics product offering and opened up a number of new opportunities, particularly in the Aerospace & Defence sector. Constelex Technology Enablers Limited ( Constelex ), acquired in November 2013, is a small photonic systems business with expertise in fibre optic amplifiers for satellite communications. Constelex, which brought strong relationships with space agencies and satellite manufacturers, has been absorbed into Gooch & Housego s Torquay-based Systems Technology Group (STG). Gooch & Housego s long term strategic themes of diversification and moving up the value chain have resulted in further progress towards a more balanced and vertically integrated business with reduced exposure to risk and cyclicality. Developing and maintaining close relationships with key customers has helped the Company to anticipate and respond to market trends. Such market intelligence has informed Gooch & Housego s near term new product development initiatives and guided the Company s longer term organic and acquisitive growth strategies. A targeted approach to acquisitions has been developed in the past year with the aim of accelerating delivery of the strategic objectives of the business. While still at an early stage, initiatives commenced during 2014 to enhance operational efficiency and drive continuous improvement throughout the organisation are already delivering results in the form of reduced costs and improving margins. Rationalising operations and simplifying the management and organisational structure are key aspects of this process. R&D expenditure increased as expected in 2014. Investments in the STG and a small number of significant new product development opportunities have accounted for the majority of this increase. The STG has met its ambitious growth targets in what was its first full year of operations. The trend towards a more balanced spread of business across the Company s principal market sectors has continued. In order to facilitate both organic and acquisitive investments, the business refinanced its banking facilities in November 2014. Further detail is given in the Financial & Operating Review. Markets and applications Industrial Gooch & Housego has addressed an increasingly diverse range of industrial applications for photonics during 2014, including semiconductor manufacturing and test, microelectronics, remote sensing, metrology and telecommunications. The Industrial market demonstrated significant growth in 2014, driven by both organic growth in our telecommunications and fibre laser business, and acquisitive growth that has come from Spanoptic. In addition, technology trends in the Company s traditional industrial laser market have enabled rationalisation of the product range and provided the opportunity to consolidate operations. Shifts in technology represent both a threat and an opportunity. As the world leader in acousto-optics for industrial lasers, Gooch & Housego has been able to anticipate and prepare for the growing use of fibre lasers in materials processing applications. While sales of conventional water-cooled Q-switches declined during 2014 as expected, this trend was more than compensated for by a growing demand for acousto-optic modulators for fibre laser applications. Sales of this comparatively new product eclipsed those of the conventional Q-switch in 2014 in both volume and revenue terms. Although highly cost-sensitive, efforts to scale production volumes while controlling costs have enabled Gooch & Housego to retain its dominant position in this sector. With further initiatives in the pipeline the Company is well-positioned to maintain its market leading position. At the opposite end of the scale, the semiconductor manufacturing and test market demands high levels of complexity and exceptional performance in modest volumes. New products launched during 2014 have been well received, and with the combination of acousto-optic and laser technology providing the key to enhancing miniaturisation and speed in this rapidly advancing field, the signs are that this sector will grow in importance in the coming years. Lasers are increasingly being used in sensing applications, both free-space and in-fibre, and Gooch & Housego has strengthened its position in this growing market during the past year. Key new products include narrow line width laser sources and acousto-optic and fibre optic components. Gooch & Housego has been able to leverage its world-class photonic component technologies to meet customer pull for integrated sensor sub-systems, and in doing so has been successful in moving up the value chain in the sensor market. The telecommunications sector in 2014 was mixed. Products for modulation systems performed extremely well while sales of high-reliability fibre optics for sub-sea applications were flat as a result of delays to long-haul cable infrastructure projects. With the first of these projects receiving the go ahead towards the end of the financial year it is anticipated that there will be more activity in this sector in 2015. Aerospace & Defence During 2014 revenue from the Aerospace & Defence sector accounted for 27% of revenue, and in absolute terms was 1.5m higher than the previous year. Established customer relationships have been reinforced, and new ones forged, as a result of business development activities initiated in the past 12 months. Guidance and navigation, laser target designation and laser range finding continue to be the principal applications. The Aerospace & Defence sector has always been exceptionally demanding in terms of product quality, reliability and performance, but in recent years it has also become intensely cost focused. In order to maintain competitiveness and keep pace with customer expectations, Gooch & Housego has invested considerable effort in the past year to reduce costs while continuing to improve quality and delivery performance. Areas of focus have included supply-chain, management, sub-contract partners and internal manufacturing equipment and

08 STRATEGIC REPORT GOOCH & HOUSEGO PLC processes. These initiatives are ongoing and are an essential aspect of doing business in this sector, which presents significant opportunities for future growth. Life Sciences Whilst demand from the Life Sciences sector for sub-system products was solid during 2014, sales of some acousto-optic products in this sector were weaker than in previous years, resulting in an overall flat performance year on year. Principal applications were optical coherence tomography (OCT), ophthalmology, microscopy, laser surgery and aesthetic laser treatments. We continue to believe the increasingly widespread use of photonics in biomedical research, diagnostics and surgery represents a significant growth opportunity for Gooch & Housego. Companies in this market frequently prefer suppliers that are capable of providing more than just components, and during the past year Gooch & Housego has worked closely with several key customers to support the design and development of their next generation systems. Through the acquisition of Spanoptic Gooch & Housego gained a manufacturing partner in China capable of producing high-quality, competitively priced sub-systems and has been working with them to establish procedures and controls appropriate for this demanding but exciting market. Scientific Research For Gooch & Housego, the Scientific Research market is dominated by a small number of Big Science projects in the fields of nuclear fusion research and synchrotron radiation sources. These large, long term projects are reliant on government funding and are frequently subject to delay when budgets are under pressure. Following delays in the previous year that extended into the early months of 2014, demand picked up later in the year but was not sufficient to prevent a small decline in overall revenues from this sector. Growth Good progress has been made in delivering growth via a combination of organic and acquisitive means. Initiatives to increase the rate of organic growth have included focussing on a smaller number of higher-value near-market opportunities, increasing investment in the STG and introducing new technology, capabilities and relationships via the acquisition of Constelex. Several new product opportunities have necessitated working closely with customers to refine and qualify complex sub-system and instrumentation products for applications new to Gooch & Housego. With the potential to provide further diversification and balance in the business, these projects are on target for commercialisation in the coming year. The acquisition of Constelex, the increase in headcount to eleven and the growth in the number of contracts and funded projects has made it necessary to provide dedicated facilities for the STG. Further investment in the Company s Torquay facility is planned, supported by 1.2 million of grant funding from the Regional Growth Fund, to make available dedicated R&D laboratories alongside additional space for expansion of fibre optic components and systems manufacturing in Torquay. The STG has been successful in securing European Space Agency, UK Space Agency and European Union funding in 2014. By the end of the year the STG was leading or participating in a total of six space photonics projects, including the projects that came with the acquisition of Constelex. The first satellite communications project won by the STG was successfully completed in 2014 with the delivery of a technology demonstrator. A follow-on contract to produce a flight-capable system has since been awarded. While these projects are part of a medium to long term strategy to develop a leadership position in space photonics, the STG is also actively engaged in near-market developments in OCT, fibre lasers and fibre optic sensing as the Company leverages its components expertise to move up the value chain into systems. Complementing Gooch & Housego s already strong position in planar optics, the acquisition of Spanoptic has added high precision spherical and aspheric lens manufacturing capabilities, as well as infrared optics and coatings. The latter are particularly relevant for Aerospace & Defence applications. Operational Excellence Gooch & Housego embarked on a number of initiatives to improve margins and reduce working capital in 2014. Whilst the full anticipated benefits are not expected to be seen until later in 2015 and beyond, these are aimed at applying a uniform standard of operational excellence across all of the Company s operating facilities. These initiatives are addressing site rationalisation, product consolidation, manufacturing, quality and process controls, supply-chain management and inventory reduction. Although very much work-in-progress, the benefits of these initiatives are already beginning to be reflected in improving margins. Recent trends in the industrial laser market have resulted in a more streamlined product range, which has made it possible to consolidate manufacturing operations. In April 2014 the closure of the Company s acousto-optic manufacturing site in Melbourne, Florida, was announced. Customers will continue to be fully supported from Gooch & Housego s other acousto-optic manufacturing operations in the UK and California. The business transfer process is well advanced and is on schedule to be completed by the end of the calendar year. Board Succession Succession planning to underpin the continued success of the business and support the smooth evolution of the board was a priority during 2014. At the end of May 2014 Terry Scribbins retired as Chief Operating Officer. I would like to reiterate my thanks to Terry for his enormous contribution to Gooch & Housego over the past decade. In August 2014, Mark Webster made the transition from a non-executive to an executive role and was appointed as Deputy Chief Executive Officer. He will succeed me as Chief Executive Officer in January 2015. I would like to welcome Mark to the executive team. In November 2014 Alex Warnock joined the board as Chief Operating Officer, and will be instrumental in delivering operational excellence across the organisation. Outlook Gooch & Housego has made good progress in executing its strategy during 2014, and in doing so has met expectations for growth and profitability. Strategic acquisitions have been used to accelerate organic growth and add new capabilities and customers, resulting in a more diversified and better balanced business that is well-positioned to deliver sustained growth. The initiatives to embed a culture of continuous improvement and deliver operational excellence that commenced in 2014 provide a sound basis for further margin improvement in 2015 and beyond under the direction of the new executive team and with a solid order book the Board are confident of the Group s prospects. Gareth Jones

GOOCH & HOUSEGO PLC STRATEGIC REPORT 09 Gooch & Housego has made good progress in executing its strategy during 2014, and in doing so has met expectations for growth and profitability.

10 STRATEGIC REPORT GOOCH & HOUSEGO PLC Market Overview Industrial Revenue ( million) 39.8 +16.0% 2014 39.8 2013 34.3 Adjusted Operating Profit* ( million) 8.1 +26.6% 2014 8.1 2013 6.4 Percentage of Revenue APPLICATIONS, PRODUCTS AND MARKETS Industrial Lasers for materials processing applications. Gooch & Housego supplies Q-switches and other acousto-optic, electro-optic and fibre optic products. The end users for industrial lasers are extensive due to the ubiquitous adoption of this technology in manufacturing. The microelectronics industry represents the largest end market. Telecommunications specifically for high reliability and high performance applications. The products supplied into this market are based upon the Group s fibre optic, crystal growth and precision optics technologies. The end users of these products are typically global telecommunication systems companies for applications such as undersea telecommunication networks and tuneable lasers. Metrology for laser-based, high-precision, non-contact measurement systems. The Group principally supplies its precision optics and acoustooptics into this market, where customers are typically blue-chip OEMs. Remote sensing for applications including asset protection, perimeter security, strain, temperature and pressure sensing. Gooch & Housego supplies fibre optic and acousto-optic components and sub-assemblies, including the recently developed Fibre-Q. Manufacturers of these systems address diverse end markets such as wind energy and oil and gas. Semiconductor for lithography and test and measurement applications. The products supplied into this market are precision optics and acousto-optics. Customers are typically global semiconductor equipment manufacturers. This market is closely aligned with the micro-electronics industry. GROWTH STRATEGY 57% To continue to invest in R&D and engineering to bring new products to existing markets and to keep products at the cutting edge of their technology. During 2014 Gooch & Housego introduced seven new products that address its Industrial market. These were specifically in the Company s telecommunications, semiconductor, sensing and industrial laser sub markets. To focus on niche markets that play to the strengths of Gooch & Housego. These are principally those that demand high levels of quality, reliability and survivability in harsh environments. To expand into and develop, new geographical markets that offer high growth opportunities, through leveraging and expanding the Group s global sales organisation. 2014 57% 2013 54% *Excluding Melbourne closure costs To continue to focus energies and investment to make the transition from a components supplier to a manufacturer of sub-assemblies, instruments and systems. In the wider industrial space, the sensing market presents opportunities for our instrumentation business. To invest in longer term R&D projects. To make strategic acquisitions. In October 2013, Gooch & Housego acquired Spanoptic. This acquisition strengthens the Group s position in precision optics for the Industrial market.

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12 STRATEGIC REPORT GOOCH & HOUSEGO PLC Market Overview Aerospace & Defence Revenue ( million) 18.8 +8.7% 2014 18.8 2013 17.3 Adjusted Operating Profit* ( million) 2.7 +28.6% 2014 2.7 2013 2.1 Percentage of Revenue APPLICATIONS, PRODUCTS AND MARKETS Target designation and range finding used on both land-based and airborne systems. The products supplied into this market are based upon our precision optics and electro-optics technologies. Our customers are US and European defence contractors. Guidance and navigation components for ring laser gyroscope and fibre optic gyroscope inertial navigation systems. The products supplied into this market are based upon our fibre optic and precision optics technologies. Gooch & Housego navigation components are used in a variety of end markets, including civil and military aircraft, missiles, satellites and space exploration. The customers are US and European avionic, defence and space organisations. Countermeasures for ground based systems and airborne platforms. The products supplied into this market are based upon fibre optic, acousto-optic and non-linear optics technologies. The customers are US and European defence contractors. Quantum cryptography & cyber security this is an area of considerable research interest, requiring the most sophisticated fibre-optic components and sub systems. GROWTH STRATEGY Aerospace & Defence represents a large potential market for Gooch & Housego. Following recent investment and acquisitions the Group now has a unique range of world leading photonic products and is beginning to be recognised as a key supplier to the Aerospace & Defence industry. 2014 27% 2013 27% *Excluding Melbourne closure costs 27% To continue to focus energies and investment to move from being a components supplier to a sub-systems provider. Our Aerospace & Defence customers are moving their own business models away from sub-system manufacture and are looking for companies such as Gooch & Housego that are capable of providing a full service in this space. The Aerospace & Defence market has become increasingly cost sensitive and Gooch & Housego is investing in manufacturing processes and engineering in order to meet the exacting expectations of this sector. To make strategic acquisitions. In October and November 2013, respectively, Gooch & Housego acquired Spanoptic and Constelex. These acquisitions strengthen the Group s position in Defence and Space photonics. Whilst Gooch & Housego is not planning any further acquisitions in the short term, the Company is not discounting high quality acquisitions as a route to continue to grow its Aerospace & Defence business should the opportunity arise. To introduce new products. During 2014 Gooch & Housego introduced two new products that address its Aerospace & Defence market.

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14 STRATEGIC REPORT GOOCH & HOUSEGO PLC Market Overview Life Sciences Revenue ( million) 7.3-1.4% 2014 7.3 2013 7.4 Adjusted Operating Profit* ( million) 1.0-23.1% APPLICATIONS, PRODUCTS AND MARKETS Optical Coherence Tomography (OCT) primarily used in retinal imaging for the diagnosis of glaucoma and macular degeneracy. Gooch & Housego provides a family of fibre optic products into this market, ranging from discrete components to full optical systems. Customers include most of the world s leading manufacturers of OCT retinal imaging systems. Laser surgery used in a wide range of applications including prostate surgery, scar correction, cataract surgery, freckle, mole and tattoo removal as well as wrinkle reduction and teeth whitening. The products supplied into this market are based upon electro-optic, fibre optic and acousto-optic technologies. The customers in this market include both laser system manufacturers and biomedical equipment manufacturers. Microscopy modern, laser-based techniques are revolutionising the field of microscopy. Gooch & Housego s acousto-optic devices and hyperspectral imaging systems are used to control the multiple laser sources and analyse complex images. The end customers are typically medical equipment manufacturers. 2014 1.0 2013 1.3 Percentage of Revenue GROWTH STRATEGY The growth strategy for Life Sciences mirrors that for Aerospace & Defence in many respects. This is particularly true in terms of the size of the available market and the desire of the customer base to pull Gooch & Housego up the value chain. In 2014 sales of some acousto-optic products in this sector were weaker than in previous years, resulting in a flat performance year on year. To continue to invest in longer term R&D projects and grow by bringing new products to the market. During 2014 Gooch & Housego introduced five new products that address its Life Sciences market. 10% To make strategic acquisitions. In October 2013, Gooch & Housego acquired Spanoptic. This acquisition strengthens the Group s position in precision optics for the Life Sciences market. Whilst Gooch & Housego is not planning any further acquisitions in the short term, the Group is not discounting high quality acquisitions as a route to grow its Life Sciences business should the opportunity arise. 2014 10% 2013 12% *Excluding Melbourne closure costs

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16 STRATEGIC REPORT GOOCH & HOUSEGO PLC Market Overview Scientific Research Revenue ( million) 4.1-4.7% 2014 4.1 2013 4.3 Adjusted Operating Profit* ( million) 0.4-20.0% 2014 0.4 2013 0.5 Percentage of Revenue APPLICATIONS, PRODUCTS AND MARKETS Nuclear fusion research & energy laser technology is being used to recreate the conditions found in the core of the sun. At these temperatures and pressures isotopes of hydrogen fuse to form helium and in doing so release huge amounts of energy the energy that powers the sun and stars. One of the most exciting potential applications of this research is using laser fusion to provide limitless quantities of clean, carbon-free energy to meet the world s growing needs. The products supplied into this market utilise a wide range of the Company s technologies including crystal growth, precision optics, thin-film coatings and fibre optics. Gooch & Housego supplies many of the world s leading nuclear fusion energy research facilities. Gooch & Housego is sole supplier of many critical optical components used in the world s most powerful laser system at the National Ignition Facility (NIF) at Lawrence Livermore National Laboratory. Instrumentation for applications in agricultural, solar, marine and industrial research. An example of an industrial research application is the development of Light Emitting Diode (LED) illumination systems. Instrumentation products are supplied from our Orlando facility and include photometers, radiometers, spectroradiometers and their associated calibration services. The customer base ranges from universities and research institutes to Government agencies and national standards laboratories. GROWTH STRATEGY To maintain and develop the business s capabilities in crystal growth and ultra precision optics for nuclear fusion research and energy, University research and Big Science projects. Gooch & Housego is the custodian of some of the world s most advanced optical technologies. 6% A small number of Big Science projects, which are reliant on government funding, dominate this market. Following delays due to budgetary pressure in the previous year, which extended into the early months of 2014, demand picked up later in the year but was not sufficient to prevent a small decline in revenue. The products supplied into this market span the complete breadth of the Company s technology portfolio. Many of Gooch & Housego s current products have evolved from early stage collaborations with universities and it is an area the Company continues to focus on. To continue to invest in R&D to develop and commercialise the next generation of Instrumentation products. 2014 6% 2013 7% *Excluding Melbourne closure costs

Bottom 3 images courtesy of Lawrence Livermore National Laboratory GOOCH & HOUSEGO PLC STRATEGIC REPORT 17

18 STRATEGIC REPORT GOOCH & HOUSEGO PLC Financial and Operating Review PERFORMANCE OVERVIEW The business has delivered profitable growth and improving margins whilst experiencing considerable foreign exchange headwinds. During the year the business has acquired and successfully integrated two companies, which have both contributed positively to adjusted profits in their first year of ownership under Gooch & Housego. The Company has delivered an excellent cash performance in the year, increasing its net cash position from 5.7m at 30 September 2013 to 8.7m at 30 September 2014. During this period, Gooch & Housego has also invested 5.5m in acquisitions and 2.8m in property, plant and equipment and intangible assets. In the financial year under review, margins benefited from the greater operating leverage gained from increased volumes and efficiency gains made by the business this year. As a result, adjusted operating margins have increased to 17.1% (2013: 16.2%). REVENUE Year ended 30 September 000 % 000 % Industrial 39,813 57% 34,345 54% Aerospace & Defence 18,786 27% 17,273 27% Life Sciences 7,318 10% 7,353 12% Scientific Research 4,139 6% 4,281 7% Group Revenue 70,056 100% 63,252 100% Group revenue for the year was a record 70.1m, an increase of 6.8m, or 11% over the previous year of 63.3m. On a consistent currency basis revenue was 16% higher than the previous year, with 10% of this growth coming from acquisitions. In our Industrial segment, revenue grew by 15.9% from 34.3m last year to 39.8m this year. Similarly, revenue in our Aerospace & Defence business grew by 8.8%, from 17.3m to 18.8m. Sales into our Life Sciences market were flat, whilst our smallest segment of Scientific Research fell by 3.3%. A more detailed analysis of revenues by market is shown in the Market Analysis section, earlier in this report. GROUP EARNINGS PERFORMANCE All amounts in 000 Adjusted Reported Year ended 30 September Operating profit 11,974 10,268 8,395 8,951 Net finance costs (514) (608) (514) (608) Profit before taxation 11,460 9,660 7,881 8,343 Taxation (2,951) (2,490) (2,482) (2,151) Profit for the year 8,509 7,170 5,399 6,192 Basic earnings per share (p) 35.6p 32.0p 22.5p 27.7p The Group adjusted profit before tax amounted to 11.5m (2013: 9.7m) and represented a return on revenue of 16.4% compared with 15.3% in the previous year. Statutory profit before tax was 7.9m compared with 8.3m last year, reflecting the one off costs associated with the closure of our New Jersey R&D facility, the closure of our Melbourne facility and the write off of goodwill associated with our 2011 EM4 acquisition. Against this, the company had a one off benefit associated with the gain on acquisition of Spanoptic. The adjusted effective rate of tax was 25.8% (2013: 25.8%). The effective rate of tax of 31.5% (2013: 25.8%) was higher due to the impairment of goodwill and write off of deferred tax assets due to the closure of the Melbourne site. The rate also reflects a combination of the varying tax rates applicable throughout the countries in which the Group operates, principally the UK and the USA. The effect of the reduction of the UK corporation tax rate was largely offset by a greater proportion of the Group s profit being taxed in the US. The introduction of the patent box tax regime from April 2013 has not contributed to a lower tax rate in 2014 and will not in 2015 due to the Group historically filing patents in the USA rather than in the UK or Europe. Current policy is to file patents in the UK when possible. The effective rate of tax should benefit in the future from further reductions in the UK tax rate, although the increased percentage of profit generated in the USA, where tax rates are higher, will also have an impact. Adjusted earnings per share (EPS) increased from 32.0p to 35.6p. Basic EPS was 22.5p compared with 27.7p last year. NON GAAP MEASURES The Company uses a number of non GAAP measures which are shown in the table above and in the segmental analysis. These measures are used to illustrate the impact of non-recurring and non-trading items on the Company s financial results. These are the impact of the amortisation of RECONCILIATION OF ADJUSTED PERFORMANCE MEASURES Operating Profit Net finance costs Taxation Earnings per share Year ended 30 September pence pence Reported 8,395 8,951 (514) (608) (2,482) (2,151) 22.5p 27.7p Amortisation of acquired intangible assets 1,525 875 (381) (225) 4.8p 2.9p Gain on bargain purchase (1,039) (4.3p) Impairment of goodwill 1,538 6.4p Acquisition costs 164 (42) 0.5p Restructuring costs 1,555 278 (88) (72) 6.2p 0.9p Adjusted 11,974 10,268 (514) (608) (2,951) (2,490) 35.6p 32.0p

GOOCH & HOUSEGO PLC STRATEGIC REPORT 19 acquired intangible assets, gain on bargain purchase of Spanoptic, impairment of goodwill, acquisition costs and costs associated with restructuring activities. In addition, the Company uses the term EBITDA (Earnings before interest, taxation, depreciation and amortisation). This is a commonly used measure of operating performance and cash flow. SEGMENTAL ANALYSIS Industrial Our Industrial business grew strongly during the year, with revenues of 39.8m, compared with 34.3m last year. Revenue from the Group s traditional Q-switch product fell during the year, as anticipated, and now represents 10.2% of total group revenue (2013: 12.2%). We believe this reflects the continuing shift towards the use of fibre lasers in materials processing applications. Once again this appears to be supported by the significant increase in sales of fibre laser components experienced by Gooch & Housego in 2014. Telecommunications revenues were up significantly in the year due to increased demand for our crystal products for modulation applications. The acquisition of Spanoptic Ltd also strengthened our offering in the Industrial space. After adjusting for the Melbourne site restructuring costs and the revised corporate allocation basis, operating profit for the Industrial sector as a whole was 26.3% higher at 8.1m, compared with 6.4m last year. This reflects a combination of the Spanoptic acquisition and operational gearing resulting from additional volume flowing through our Palo Alto facility. Aerospace & Defence (A&D) A&D business revenue increased by 8.8% from 17.3m to 18.8m in 2014. The business continues to provide both components and systems to the Company s UK and US A&D customers and this year this was supplemented by the additional contribution from the Spanoptic acquisition. Despite continuing softness in engineering contracts as a result of US Government spending constraints, our engineering services business also performed better in 2014. Operating margins in this sector improved largely as a result of the additional volume. Life Sciences In 2014 the Life Science market was flat for Gooch & Housego. Whilst the business benefited from the additional contribution that the Spanoptic acquisition brought, sales of acousto optic products into this market were down. Operating margins in this sector were down, largely as a result of product mix. We continue to believe this market offers a significant growth opportunity. Scientific Research Our activities in the Scientific Research market are dominated by a small number of large, long-term programmes. This market was weaker for Gooch & Housego in 2014 as a result of a slow-down in demand from the laser fusion programmes as a result of budgetary pressures. Once the construction of Laser Megajoule is complete we expect on-going business to be service replacement and maintenance requirements for these projects. RESEARCH & DEVELOPMENT (R&D) Gooch & Housego continues to invest in R&D in all areas of the business and regards this as fundamental to the continued growth of the company. There were fourteen product releases in 2014, together with four new patents granted. UK and European grant funding. R&D expenditure represented 8.1% of revenue (2013: 7.8%). The Group capitalised 0.5m (2013: 0.03m) of development expenditure. PERFORMANCE OF ACQUISITIONS AND SITE PERFORMANCE The acquisitions of Spanoptic and Constelex continued our strategy, reinforcing Gooch & Housego s leadership in precision optics and high-end fibre optics for space applications, contributing to our diversification and strengthening our position in our core, and new target, markets. The acquisition of Spanoptic has brought high precision spherical and aspherical optics, as well as infra-red optics and coatings to Gooch & Housego s existing stable of precision optic capabilities. This acquisition was completed in October 2013 and has contributed 6.6 million in revenue and 1.4 million in profit before allocation of central costs in the year to 30 September 2014. The acquisition also resulted in a gain on bargain purchase of 1.0 million. The acquisition of Constelex, a small photonic systems business specialising in fibre amplifier technology for the space market, was completed in November 2013. As well as providing a great stimulus to the STG, the Constelex has contributed 36,000 in revenue and 16,000 in profit in the year to 30 September 2014. As part of its bi-annual review of the carrying value of goodwill, the Board has taken the decision to impair the goodwill relating to the Boston cash generating unit. This goodwill arose on the acquisition of EM4, now referred to as Gooch & Housego Boston, in January 2011 for consideration of $11.6 million and, prior to the impairment, the carrying value of the associated goodwill was 5.8m. Over the last three years this acquisition has played a vital role in Gooch & Housego s diversification strategy, by providing the systems and critical mass needed for the Company to become a credible player in the Aerospace & Defence market. The duplication of Boston s technology in our Torquay facility has also been a key factor in allowing Gooch & Housego to address the European space market. However, on a stand-alone basis, Boston has struggled to grow its engineering services business during the well documented cuts in US government spending on defence. Recent trends in this market and a success in its products business, are encouraging signs for the future. These changes have yet to produce tangible results and as a result, the Board feels it is appropriate to make an impairment of 1.0m to the carrying value of Boston. Following inconclusive discussions with potential commercial partners earlier this year, it was decided to mothball the Group s work on cancer diagnostics using hyperspectral imaging and to close its research facility in New Jersey. The cost of closing this facility was 0.8 million, of which 0.7 million related to non-cash costs ( 0.6 million of goodwill impairment). It is expected that the closure of this facility will result in an annual cash saving of 0.3 million per annum. Gooch & Housego will continue to develop and manufacture hyperspectral imaging products from its Orlando facility. On 16 April 2014, management announced the proposed closure of the Group s Melbourne, Florida facility in connection with the consolidation of acousto-optic development and manufacturing into two of the Group s existing sites. The closure of this facility is expected to be completed by the end of December 2014. The cost of closing this site is expected to be 1.8m, of which 1.4m has been recognised in the year to 30 September 2014. Expenditure on R&D in the year to 30 September 2014 increased by 16.3% from 4.9m to 5.7m. A proportion of this increase was funded through

20 STRATEGIC REPORT GOOCH & HOUSEGO PLC Group revenue for the year was a record 70.1m, an increase of 6.8m or 11% over the previous year of 63.3m.

GOOCH & HOUSEGO PLC STRATEGIC REPORT 21 BALANCE SHEET The Group s shareholders funds at the end of the year were 69.9m, an increase of 5.0m over the prior year. This increase comprised 0.2m due to the issue of share capital and 4.8m from retained earnings. Additions to property, plant and equipment totalled 1.9m. The main fixed asset additions related to investment in plant and machinery and the expansion of our Torquay facilities and equipment to accommodate the Systems Technology Group. Working capital was 22.0% of revenue in the current year compared to 24.7% in 2013. Inventories have increased by 1.3m from 13.4m in 2013 to 14.7m at this year-end, although if acquisitions are excluded the increase was 0.5m. Trade and other receivables have increased by 0.3m from 12.7m in 2013 to 13.0m at this year-end. However, again after stripping out the trade and other receivables attributable to acquisitions of 1.4m, the balance has actually decreased by 1.1m compared to 2013. Cash balances at 30 September 2014 were 17.1m, compared with 14.6m at 30 September 2013. Net cash flows from operating activities generated 13.7m, compared with 9.2m last year. During the year the business moved from a net cash position of 5.7m as at 30 September 2013, to a net cash position of 8.7m. MOVEMENT IN NET CASH All amounts in m Gross Gross Net Cash Debt Cash At 1 October 2013 14.6 (8.9) 5.7 Operating cash flows 13.6 13.6 Acquisitions (5.5) (0.3) (5.8) Debt repayment (net of drawdown) (0.9) 0.9 Capital expenditure (2.7) (2.7) Working capital 1.7 1.7 Proceeds from share issue 0.1 0.1 Interest, tax and dividends (3.8) (3.8) Exchange movement (0.1) (0.1) At 30 September 2014 17.1 (8.4) 8.7 ORDER BOOK As at 30 September 2014, the Group order book stood at 32.8m, compared to 27.8m at the end of the 2013 financial year, an 18% increase. On a like for like basis, excluding the impact of acquisitions, the order book was 7% higher. Book to bill ratios for the business as a whole were 1.43 times (six month rolling average) as at 30 September 2014, compared to 1.01 times for the same period last year. STAFF The Group workforce increased from 581 at 30 September 2013 to 664 at the end of September 2014, an increase of 83, of which 63 was due to acquisitions. This is a net position and therefore reflects both the reductions in staffing resulting from the work the business has done in integration and rationalisation of sites and processes and the additional investment that the business has made in engineering, business development and management. POST BALANCE SHEET EVENTS On 13 November 2014, the remaining 125,000 of deferred consideration in respect of the acquisition of Constelex Technology Enablers Limited was settled in the form of share capital. On 14 November 2014, the Company refinanced its debt facilities with the Royal Bank of Scotland. The Group now has a committed revolving credit facility of $15m and an uncommitted flexible acquisition facility of $20m available until 30 April 2019. Upon inception of the new facility, all existing RBS borrowings were repaid and $8m of the new revolving credit facility was drawn. DIVIDENDS The Directors propose a final dividend of 4.6p per share making a total dividend for the year of 7.2p (2013: 6.3p). The final dividend will be payable on 5 March 2015 to shareholders on the Company s share register as at close of business on 19 December 2014. KEY PERFORMANCE INDICATORS (KPIS) The Group objective is to deliver sustainable, long-term growth in revenue and profits. This is to be achieved through the execution of the Board s strategies of market diversification, the continued investment in R&D to support organic growth, the acquisition of strategically complementary businesses and the on-going drive to move up the value chain. In striving to achieve these strategic objectives, the main financial performance measures monitored by the Board are: Total revenue growth 2012 At actual exchange rates 11% 4% 0% At constant exchange rates 16% 3% (1%) The Board is focused on delivering revenue growth by investing both organically and through acquisitions. The Group business has delivered underlying growth, whilst experiencing variable demand patterns within its core markets. Target market revenue 2012 Aerospace & Defence ( m) 18.8 17.3 15.4 Life Sciences ( m) 7.3 7.4 5.7 The Group target markets of Aerospace & Defence and Life Sciences provide a route to sustainable growth, and a more diversified revenue base. These markets also provide significant opportunities for Gooch & Housego to migrate up the value-chain from materials and components to higher value sub-assemblies, modules and systems in response to the trend for our larger customers to outsource increasingly complex parts of their business. The business has made good progress in addressing its target markets of Aerospace & Defence and Life Sciences which, in aggregate, have increased by 5.7% in the 2014 financial year. Net cash analysis 2012 Net cash/(debt) ( m) 8.7 5.7 (0.3) In order to balance business risk with the investment needs of the Company, management closely monitor and manage net debt. This year the business increased its net cash position of from 5.7m to 8.7m, putting the business in a strong position both in terms of headroom for further investment and from the perspective of managing its business risk. Earnings per share (EPS) 2012 Adjusted diluted EPS (pence) 35.2p 30.5 26.4 As a result of a strong trading performance, the business has been able to deliver growth in adjusted diluted EPS of 15.4%, from 30.5p to 35.2p in 2014.

22 STRATEGIC REPORT GOOCH & HOUSEGO PLC Strategy Overview Gooch & Housego has developed and measures itself on a set of strategies to deliver long term sustainable growth to its shareholders. These can be categorised into three broad pillars: Diversification, Moving up the Value Chain and Organic Research & Development. In seeking to achieve its strategic goals management use a variety of tools, including investment in R&D, acquisitions and strategic partnerships. STRATEGIES DIVERSIFICATION To develop, through R&D and acquisition, a presence in new markets that offer the potential for significant growth as a result of their adoption of photonic technology, while also reducing our exposure to cyclicality in any particular sector. Progress a) Diversification within the Industrial market. In FY2014, Gooch & Housego grew its business in the areas of: Industrial lasers Telecommunications Semiconductor manufacturing and test b) Aerospace & Defence. Revenues increased by 9% in this market segment in FY2014 Additional Aerospace & Defence revenues through Spanoptic acquisition. Presence in space photonics enhanced through acquisition of Constelex c) Life Sciences Revenues flat in this segment in FY2014 Additional Life Sciences revenues through Spanoptic acquisition. MOVING UP THE VALUE CHAIN To leverage our excellence in materials and components to move up the value-chain to more complex sub-assemblies and systems. Progress Continued expansion of the Systems Technology Group to further focus the business s drive up the value chain. This has been aided by the granting of a Regional Growth Fund award of 1.2m. ORGANIC RESEARCH & DEVELOPMENT To leverage Gooch & Housego s exceptional materials and component capabilities to develop innovative new products. Progress In FY2014 the company s organic research & development programmes have delivered fourteen new products. In addition, four new patents have been awarded. Expansion of the STG via acquisition and recruitment. Creation of a dedicated facility for the STG. The Group continues to invest in longer term R&D projects in all of its key markets. Investment in R&D increased by 16.3% in FY14.

GOOCH & HOUSEGO PLC STRATEGIC REPORT 23 Principal Risks and Uncertainties Gooch & Housego adopts a formal risk identification and management process designed to ensure that risks are properly identified, prioritised, evaluated and mitigated to the extent possible. A formal group wide risk register is maintained and approved by the Board on an annual basis. The following risks are, in the opinion of the Board, the principal risks which affect Gooch & Housego. RISK Retention of key personnel The Group recognises the importance of retaining and developing its highly skilled management team and workforce in order to achieve its strategic objectives. Future trading levels and order book Adverse changes in the major markets in which the Group operates can have a significant impact on the Group s performance. Financing Although currently in a net cash position, management expects to require debt financing in order to achieve the Group s growth strategy. Any restriction in the availability of such financing could affect the Group s strategy. Research and Development The Group invests heavily in research and development, to develop new products and maintain long term growth. The development of new processes and products involves risks such as development timescales, which may take longer than originally forecast and hence involve more cost. There are also technical risks associated with development programmes that mean expected results may not be delivered. Foreign exchange The business is exposed to the impact of foreign currency variances on trading transactions and on the translation of the net assets of overseas subsidiaries. This exposure is principally to the US Dollar. MITIGATION The Group maintains development and reward schemes to encourage individuals to play a long term role in the future development of the Group. Gooch & Housego PLC has seen significant growth in its business in recent years. Through its strategies of market diversification and moving up the value chain, the Group seeks to provide routes to new markets and reduce the dependence on any one market sector. However, the continued growth in the business is difficult to predict. As at 30 September 2014, the Company was in a net cash position of 8.7m (2013: net cash of 5.7m). The Group operates within certain banking covenants which it has reported under and complied with during the financial year. The Group undertakes detailed and regular financial planning and forecasting reviews to minimise any financial risk due to changing market conditions. The Group s banking facilities were renewed in November 2014. Further details are given in note 34. Expenditure is only capitalised once the commercial and technical feasibility of a product is proven. These risks are minimised by operating managed research and development programmes which are reviewed against cost and technical progress expectations. Monthly cash management reporting and forecasting is in place to facilitate management of this risk. The exposure is partially naturally hedged because a significant proportion of operating costs are denominated in US Dollars. The Group does not undertake speculative foreign currency transactions.

24 GOVERNANCE GOOCH & HOUSEGO PLC Board of Directors EXECUTIVE DIRECTORS Gareth Jones Chief Executive Officer (Appointed January 2003) Gareth Jones has an honours degree in Physics from Imperial College and is a Fellow of the Institute of Physics. He joined Gooch & Housego in 1978 and was instrumental in the development of new products and capabilities that helped transform the business from a craft-based optical engineering company into today s global technology business. Mr Jones became Technical Director in 1985 and Managing Director in 1995. In 1997 he was a member of the team that led Gooch & Housego s IPO on the Alternative Investment Market. In 2000, he left Gooch & Housego to become a Partner in a leading UK venture capital firm. He re-joined Gooch & Housego in 2003 as Chief Executive Officer. Mr Jones will retire as Chief Executive Officer on 31 December 2014. With effect from 1 January 2015, he will take on the role of Chairman. Mark Webster Deputy Chief Executive Officer (Appointed as a Non-Executive Director in February 2012 and as Deputy Chief Executive Officer in August 2014) Mark Webster has extensive business, management and leadership experience, which includes senior VP and VP roles at Bayer Healthcare, Shire Pharmaceuticals, Abbott Laboratories and most recently as CEO of Bio Products Laboratory. Prior to taking up an executive role, he was a non-executive director of Gooch & Housego PLC for two years. He was previously a non-executive director of Abcam PLC. Mr Webster holds an honours degree in Chemistry from the University of Durham. Mr Webster will take on the role of Chief Executive Officer on 1 January 2015. Andrew Boteler Chief Financial Officer (Appointed August 2009) Andrew Boteler is a Chartered Accountant, having trained with Ernst & Young and qualified in 1993. He has an honours degree from Exeter University. In 2002 Mr Boteler was part of the team that bought out the US telecommunications components group JDSU s UK fibre optics business, to establish SIFAM Fibre Optics Ltd. There, he held the position of Finance Director until the company was acquired by Gooch & Housego in May 2007. Between 2007 and 2009 Andrew held the positions of Head of Finance for Europe, Middle East and Africa and Acting Chief Financial Officer for Gooch & Housego, before joining the Board in August 2009. Alex Warnock Chief Operating Officer (Appointed November 2014) Alex Warnock is a Chartered Engineer and member of the Institute of Engineering & Technology and Institute of Directors. Prior to joining Gooch & Housego PLC, Mr Warnock held senior positions at Optos PLC, most recently Chief Operating Officer. He has also worked in senior roles at Johnson & Johnson and Pace Micro Technology Inc. Mr Warnock has an honours degree in Electrical and Electronic Engineering. He has lived and worked in the USA and Germany.

GOOCH & HOUSEGO PLC GOVERNANCE 25 NON-EXECUTIVE DIRECTORS Julian Blogh CBE PhD CEng Non-Executive Chairman (Appointed October 2006) Dr Julian Blogh has spent most of his working life in the electronics industry working with Ferranti Radar, Plessey Radar and Dowty Electronic Systems. He was Managing Director of Sonar & Communication Systems from 1987 to 1992, when he was appointed Managing Director of Dowty Avionics. He led the management buy-out of seven Dowty defence and aerospace electronics businesses from the TI Group to form Ultra Electronics Holdings plc and became Chief Executive when it began trading in October 1993. Dr Blogh was appointed Deputy Chairman in April 2004 and became Chairman in April 2005. He retired as Chairman for Ultra Electronics in April 2011. Dr Julian Blogh will retire as Chairman of Gooch & Housego PLC on 31 December 2014. Paul Heal (Appointed January 2008) Paul Heal retired from his position as a client service Partner with PricewaterhouseCoopers at the end of 2007, leaving a role he had held for 20 years. Based in their Bristol office, he was primarily responsible for middle market clients ranging from smaller listed companies (market cap < 250m) to venture capital backed and privately owned businesses. Gooch & Housego PLC was a client of Mr Heal prior to September 2003 and he advised the company through the preparation for IPO, and acted as reporting accountant for the flotation in 1997. Mr Heal is a non-executive Director of a number of other commercial and charitable organisations. Commercial directorships include Andrew and Partners (Estate Agents) and the West of England Trust (including Jordans Limited and Jordan Publishing Limited). He is a Trustee of The Theatre Royal, Bath and The Andrews Charitable Trust. Dr Peter Bordui (Appointed February 2012) Peter Bordui has twenty five years experience in the photonics industry in senior leadership roles within Bookham, NewFocus, JDSU and Crystal Technology (at the time a subsidiary of Siemens) and has held a number of additional non-executive director roles. He is currently a non-executive director of M-Squared Lasers Limited and Media Lario International S.A. He is also a governing trustee of a private charitable foundation and a director of the non-profit organisation American Citizens Abroad. Dr Bordui has bachelors, masters and PhD degrees from MIT.

26 GOVERNANCE GOOCH & HOUSEGO PLC Directors Report The Directors present their report together with the audited consolidated financial statements for the year ended 30 September 2014. A review of the development and performance of the Group during the year and its future prospects is set out in the Financial Highlights on page 1 and in the Financial and Operating Review on pages 18 21. An outline of the business s principal activities, strategy and the Group s progress in the year towards these strategies is given in the Strategic Report on pages 6 23. An analysis of the segmental information by market sector is given on pages 10 17. KEY FINANCIAL PERFORMANCE INDICATORS ( KPIS ) The Group uses a selection of KPIs to monitor and review the performance of the business. These are detailed from page 21 of the Financial and Operating Review. DIVIDENDS During the year ended 30 September 2014 a final dividend of 4.0p per share was paid for the previous financial year. The final 2012 dividend of 4.0p per share was paid in the year ended 30 September 2013. A further interim dividend of 2.6p per share was paid for the half year ended 31 March 2014 (2013: 2.3p). For the year ended 30 September 2014, the Directors propose that a final dividend of 4.6p per share be paid. SUBSTANTIAL SHAREHOLDINGS As at 15 November 2014, the following shareholders had notified the Company that they held an interest in 3% or more of its issued ordinary share capital: Shareholder Number % holding Schroders Investment Management 3,205,257 13.4% BlackRock Investment Management 2,338,423 9.8% Standard Life 1,713,242 7.2% Investec Wealth & Investment 1,689,734 7.1% Octopus Investments 1,639,851 6.9% Gooch & Virgin Family Trust 1,477,090 6.2% Franklin Templeton Investment Management 925,000 3.9% GVO Investment Management 842,479 3.5% Save for these interests, the Directors have not been notified that any person is directly or indirectly interested in 3% or more of the issued ordinary share capital of the Company. DIRECTORS The Directors in office during the year and up to the date of signing the financial statements and their beneficial interests in the issued ordinary share capital of the Company were as follows: Number of shares at Number of shares at 30 September 2014 30 September 2013 Non-executive Directors Dr Julian Blogh 10,000 10,000 Paul Heal 17,085 21,485 Dr Peter Bordui - - Executive Directors Gareth C W Jones 45,468 45,468 Mark Webster - - Andrew N Boteler 26,181 18,533 Alex Warnock - - (appointed Nov. 2014) Details of Directors interests in options to subscribe for shares of the Company are given in the Remuneration Committee Report. TREASURY POLICIES The Group s treasury policies are designed to manage financial risk to the Group that arises from operating in a number of foreign currencies and to maximise interest income on cash deposits, whilst maintaining the security of these deposits. As an international group of companies, the main exposure is in respect of foreign currency risk on the trading transactions undertaken by group companies and on the translation of the net assets of overseas subsidiaries. This exposure is principally to the US dollar. Monthly cash management reporting and forecasting is in place to facilitate management of this currency risk. The operations of group treasury take place at head office. All balances not immediately required for group operations are placed on short-term deposit with leading international highly rated financial institutions. At a transactional level, the Group seeks to offset its exposure to foreign exchange movements by contracting with significant supply partners in US Dollars and undertakes regular financial reviews to assess whether it would be appropriate for the Group to enter into currency hedging contracts to mitigate the currency risk. During the year there were no forward contracts in place. The Group has structured the majority of its borrowings in US Dollars, which acts as a partial hedge of a net investment against its US Dollar denominated companies within the Group. QUALITY The Group prides itself on the highest standards of product quality and customer satisfaction. In doing this, it recognises that a failure to maintain such standards would be detrimental to its future trading performance. As a result, an ongoing emphasis is placed on quality control and customer communication.

GOOCH & HOUSEGO PLC GOVERNANCE 27 RESEARCH AND DEVELOPMENT The Group has a continuing commitment to a high level of research and development. This commitment is to actively develop new technologies and capabilities that will become a key part of the Group s future product portfolio and revenue. DIRECTORS INDEMNITIES The Directors have the benefit of an indemnity which is a qualifying third party indemnity provision as defined by Section 234 of the Companies Act 2006. The indemnity was in force throughout the last financial year and is currently in force. The Company also purchased and maintained throughout the financial year Directors and Officers liability insurance in respect of itself and its Directors. EMPLOYEE INVOLVEMENT The Group is committed to including all employees in the performance and development of the business. An established employee appraisal and reward scheme is in operation and employees are appraised regularly with relevant development support provided by the Group. The Group attaches considerable importance to informing and involving its employees on matters which concern them and in the achievement of its business objectives. The Group has a formal employee communication plan involving regular meetings between management and employees and the provision of a comprehensive employee handbook. EMPLOYMENT OF DISABLED INDIVIDUALS The Group is committed to employment policies, which follow best practice, based on equal opportunities for all employees, irrespective of sex, race, colour, disability or marital status. Full and fair consideration is given to applications for employment from disabled persons, having regard to their particular aptitudes and abilities. Employees who become disabled during their working life will be retained in employment wherever possible and will be provided help with any necessary rehabilitation and retraining. The Group is prepared to modify procedures or equipment, wherever this is practicable, so that full use can be made of an individual s abilities. The Board focuses on formulation of strategy, management of effective business controls and review of business performance. The Board is specifically responsible for the approval of annual and interim results and interim management statements, acquisitions and disposals, major capital expenditure, borrowings, director and company secretary appointments and removals, any material litigation, strategic forecasting and major development projects. A framework of delegated authorities is in place that details the structure of delegation below Board level and includes matters reserved to the Board. All the non-executive Directors are considered by the Board to be independent in character and judgement. In accordance with the Company s Articles of Association all directors will retire at the Annual General Meeting and, being eligible, offer themselves for re-election. The Board has three formally constituted committees, the Audit committee, the Remuneration committee and the Nomination committee. Board membership and meeting attendance is presented in the following table. Non-executive Directors Dr Julian Blogh 8/8 Dr Peter Bordui 7/8 Paul Heal 8/8 Mark Webster 7/7 Executive Directors Gareth C W Jones 8/8 Mark Webster 1/1 Andrew N Boteler 8/8 Terry Scribbins (retired 31 May 2014) 6/6 CORPORATE GOVERNANCE The Board recognises the importance of good corporate governance and has put in place procedures it considers appropriate. The Board currently comprises four executive and three non-executive Directors. On 1 January 2015, Gareth Jones will take on the role of Chairman, following the retirement of Dr Julian Blogh. The nomination committee is in the process of recruiting a fourth non-executive director. The directors holding office during the period of this report and their biographies are detailed from page 24 and are also available on our website; www.goochandhousego.com As a result of a strong trading performance, the business has been able to deliver growth in adjusted diluted EPS of 15.4%.

28 GOVERNANCE GOOCH & HOUSEGO PLC RISK MANAGEMENT AND INTERNAL CONTROL The Directors acknowledge that they are responsible for the Group s system of internal financial control. The system can provide only reasonable, and not absolute, assurance against material misstatements and losses. There are defined lines of responsibility and delegation of authorities. There are also internal financial controls in existence which are centrally maintained and documented and provide reasonable assurance of the maintenance of proper accounting records and the reliability of financial information used within the business. The Group does not have an internal audit department, but senior finance staff perform a formal, annual review of all the sites internal controls. Annual budgets are prepared for each company. Financial and operational reports enable the Board to compare performance against budget and to take action where appropriate. During the year the Group continued to develop its risk management policy, which is reviewed on a regular basis. Gooch & Housego has also developed and published its policies in relation to the Bribery Act and fraud. ENVIRONMENTAL POLICY The policy of the Group is to meet the statutory environmental requirements placed upon it and to apply good environmental practice in its operations while recognising that it is contractually obliged to meet its customer requirements. STATEMENT OF DIRECTORS RESPONSIBILITIES The directors are responsible for preparing the financial statements in accordance with applicable law and regulations. Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have prepared the group financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union, and the parent company financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law). Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the group and the company and of the profit or loss of the group for that period. In preparing these financial statements, the directors are required to: select suitable accounting policies and then apply them consistently; make judgements and accounting estimates that are reasonable and prudent; state whether IFRSs as adopted by the European Union and applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the group and parent company financial statements respectively; prepare the financial statements on the going concern basis unless it is inappropriate to presume that the company will continue in business. The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the company s transactions and disclose with reasonable accuracy at any time the financial position of the company and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the company and the group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The directors are responsible for the maintenance and integrity of the company s website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. So far as each Director is aware, there is no relevant audit information of which the Company s and Group s auditors are unaware. Each Director has taken all the steps that he ought to have taken in his duty as a Director to make himself aware of any relevant audit information and to establish that the Company s and Group s auditors are aware of that information. GOING CONCERN Based on Management s operating projections and cash flow forecasts, the Directors believe that the Group will generate sufficient cash and have access to working capital facilities to enable it to meet its funding requirements for at least the next 12 months and comply with its banking covenants. Accordingly, the Directors have formed a judgement, at the time of approving the financial statements, that there is a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. For this reason, the Directors continue to adopt the going concern basis in preparing the financial statements. POST BALANCE SHEET EVENTS Details of post balance sheet events are given in the Financial and Operating Review on page 21. INDEPENDENT AUDITORS A resolution to reappoint PricewaterhouseCoopers LLP as auditors to the Company and the Group will be proposed at the Annual General Meeting. Approved and signed on behalf of the Board of Directors by: Gareth C W Jones Director 2 December 2014

GOOCH & HOUSEGO PLC GOVERNANCE 29

30 GOVERNANCE GOOCH & HOUSEGO PLC Audit Committee Report The Audit Committee is responsible for ensuring that the financial performance of the Group is properly monitored, controlled and reported. The Audit Committee consists of three Independent Non-executive Directors and it has an appropriate balance between those individuals with finance or accounting training and those from a general business background. The Committee has met with the external auditors on three occasions during the year, together with the Chief Financial Officer and the Chief Executive Officer. There were no material changes in the reporting standards that affect our financial statements in 2014. ROLE OF THE COMMITTEE The Audit Committee: Monitors the integrity of the Company s financial statements and reviews significant financial reporting judgements. Reviews the effectiveness of financial and regulatory compliance controls and systems. Oversees the relationship with the external auditors including agreeing their fee, scope of any non-audit services and fee and assessing their independence and effectiveness. MEMBERSHIP AND ATTENDANCE AT MEETINGS HELD IN 2014 Non-executive Directors Dr Julian Blogh 3/3 Dr Peter Bordui 3/3 Mark Webster 2/2 Paul Heal 3/3 Executive Directors Gareth C W Jones 3/3 Andrew N Boteler 3/3 Mark Webster 1/1 AREAS OF FOCUS FOR THE AUDIT COMMITTEE The following have been areas of focus during 2014: Financial reporting at the half year and full year Performance of the external audit, including meeting with the auditors at the planning and completion stages of their work for both the half and full year Governance policies and procedures Formal assessments of the effectiveness of the external audit process and effectiveness of the Audit Committee Review of significant accounting policies, internal financial control systems and development of an internal audit function Review of the Group s risk register Appropriateness of the Group s non-audit service policy Paul Heal Chairman of the Audit Committee 2 December 2014

GOOCH & HOUSEGO PLC GOVERNANCE 31 Nomination Committee Report The Nomination Committee, which consists of the Chief Executive Officer and all three Non-Executive Directors, is responsible for the composition of the Board. The Committee oversaw the appointment of Mark Webster and Alex Warnock as Executive Directors during the year. ROLE OF THE COMMITTEE Reviews the composition of the Board and its committees. Identifies and recommends for Board approval suitable candidates to be appointed to the Board. Considers succession planning for Directors and other senior executives and in doing this considers diversity, experience, knowledge and skills. MEMBERSHIP AND ATTENDANCE AT MEETINGS HELD IN 2014 Non-executive Directors Dr Julian Blogh 2/2 Dr Peter Bordui 2/2 Mark Wedbster 2/2 Paul Heal 2/2 Executive Directors Gareth C W Jones 2/2 AREAS OF FOCUS FOR THE NOMINATION COMMITTEE Succession Planning Search for senior executives ADVISORS In 2014 the Committee appointed Warren Partners Limited, an external search agency, to assist with the identification of suitable candidates for the roles of Chief Executive Officer and Chief Operating Officer, due to the retirement of the incumbent officers. APPOINTMENT PROCESS As part of the appointments process, the Committee determined the selection criteria for the Chief Executive and Chief Operating Officers. The Committee worked with Warren Partners Limited who drew up a list of external candidates from a range of industries and backgrounds for initial appraisal by the Committee. Internal candidates were also considered by the Nominations Process. From this, a shortlist of suitable candidates that met the search and selection criteria was prepared and these candidates were interviewed by members of the Nomination Committee. Following these interviews, the Nomination Committee recommended to the Board, which duly approved, the appointments of Mark Webster as Chief Executive Officer and Alex Warnock as Chief Operating Officer. Mark Webster played no part in the meetings concerning his appointment. The Nomination Committee is currently in the process of appointing a fourth Non-Executive Director. Dr Julian Blogh Chairman of the Nomination Committee 2 December 2014

32 GOVERNANCE GOOCH & HOUSEGO PLC Remuneration Committee Report INTRODUCTION It is an objective of the Group to attract and retain Directors of high calibre and reward them in a way which encourages the creation of value for shareholders. The Committee undertakes the determination of executive Directors annual remuneration packages and these are reviewed with effect from 1 October each year. No executive Director plays a part in the discussion about their remuneration. Although not a member of the committee, the Chief Executive Officer submits a report outlining proposals and is usually requested to present the report to the committee. After presenting the report he withdraws from the meeting and does not participate in the decision making or voting processes. Executive Directors are paid a basic salary together with annual bonus payments based on the achievement of Group profitability targets. In addition, executive Directors participate in a share option scheme and receive benefits in kind, including medical expenses and insurance. The Committee commissioned an independent review of Director benefits and bonus schemes during 2014, following which a number of changes were made.these largely comprised: An increase in company pension scheme contributions from 8% of salary to 10% of salary; A change in the Executive Bonus Scheme whereby 50% of the maximum entitlement is paid for reaching targets (previously this was 10%); and Death in service cover increased from 3 to 4 times annual salary. Non-executive directors are paid a fee to attend board meetings and to serve as members of the Audit, Nomination and Remuneration committees. Further payments may be made in respect of additional services provided at the request of the Company. MEMBERSHIP AND ATTENDANCE AT MEETINGS HELD IN 2014 Non-executive Directors Dr Julian Blogh 2/2 Dr Peter Bordui 2/2 Paul Heal 2/2 Mark Webster 2/2 2014 PERFORMANCE Gooch & Housego has continued to perform well in 2014, delivering strong financial performance and continuing to make progress in its key strategic goals of diversification and moving up the value chain. In terms of financial performance, adjusted operating margin improved from 16.2% to 17.1%. Once again a strong cash performance resulted in the Group reporting a net cash position of 8.7m, despite investing 5.5 million in two acquisitions during the year. The increasing strength of the balance sheet meant that the Company was able to recommend a 14.3% increase in the total dividend for the year. Diversification and delivering growth have continued to be the principal strategic themes of the business. The trend towards a more balanced spread of business across the Company s principal market sectors has continued. Similarly, a balance between organic and acquisitive growth has been achieved, with the two acquisitions completed during the first quarter being supplemented by new product development at both the operational sites and within the Systems Technology Group. The Executive Directors 2014 bonus outcomes were 12% of maximum, reflecting the challenging targets set by the Remuneration Committee. 2015 PROPOSALS Gooch & Housego s objective is to set salaries for its Directors within a range and also uses variable remuneration mechanisms to ensure that individuals only receive substantial remuneration for exceptional performance. We continue to review the remuneration framework to ensure that it is appropriate to attract and retain executives of the right calibre. The committee values all feedback from shareholders and hopes to receive your support at the forthcoming AGM.

GOOCH & HOUSEGO PLC GOVERNANCE 33 REMUNERATION POLICY TABLE The table below summarises our policy for 2014/15 Element of remuneration Purpose and link to strategy Policy and approach Opportunity Planned changes Base Salary Takes into account experience and personal contribution to the company s strategy Attracts and retains executives of the quality required to deliver the company s strategy Reviewed annually with changes effective from 1 October if applicable Consideration given to individual and company performance General pay increases across the wider workforce are also taken into consideration Where the company considers it appropriate and necessary, larger increases may be awarded in exceptional circumstances Base salary increases are applied in line with the outcome of the annual review No Annual Bonus Incentivise achievement of short-term financial targets that the Committee considers to be critical drivers of business growth Awarded annually Award level is based upon level of normalised profit before tax against an internal target 50% of the maximum bonus is payable for reaching threshold targets Maximum bonus is achieved for reaching 10% over threshold targets Maximum of 100% of base salary No Pension Provide employees with market competitive pension scheme Defined contribution personal pension plan Company contributes 10% of salary 10% of base salary The Committee keeps the benefit policy and benefit levels under regular review No Benefits Provide employees with market competitive benefits Executive Directors receive private health insurance, life assurance and long term disability insurance The Committee keeps the benefit policy and benefit levels under regular review No Long Term Incentive Plan (LTIP) Incentivise executive performance over the longer term Performance measures linked to the long-term strategy of the business and the creation of shareholder value over the longer term Award levels are determined by reference to an individual s position and performance prior to grant Awards vest after three years subject to achievement of performance conditions (as set out later in the report) Maximum award of 120% of base salary Mark Webster and Alex Warnock will be granted 240% and 220% of salary respectively in their first year as Executive Directors No

34 GOVERNANCE GOOCH & HOUSEGO PLC DIRECTORS REMUNERATION 2014 Basic pay Performance Benefits Pension Subtotal Share Total Related Bonus in kind contribution 2014 Options 2014 000 Executive G C W Jones 216 29 8 27 280-280 M Webster 1 29 3 - - 32-32 A N Boteler 150 20 4 24 198-198 T Scribbins 2 116-6 9 131 80 211 Non-executive Dr J Blogh 72 - - - 72-72 P Heal 43 - - - 43-43 Dr P Bordui 18 - - - 18-18 M Webster 32 - - - 32-32 676 52 18 60 806 80 886 2013 Basic pay Performance Benefits Pension Subtotal Share Total Related Bonus in kind contribution 2013 Options 3 2013 000 Executive G C W Jones 213 86 31 17 347 2,140 2,487 T Scribbins 151 61 11 12 235 1,285 1,520 A N Boteler 143 58 3 11 215 1,285 1,500 Non-executive Dr J Blogh 70 - - - 70-70 P Heal 37 - - - 37-37 J A Melles 1 - - - 1-1 Dr P Bordui 18 - - - 18-18 M Webster 35 - - - 35-35 668 205 45 40 958 4,710 5,668 1 Mark Webster was a Non-Executive Director until 18 August 2014 when he was appointed Deputy Chief Executive Officer. He will take over the role of Chief Executive Officer on 1 January 2015. 2 Terry Scribbins retired on 31 May 2014. 3 The 2013 values for Share Options in the above table are based upon the vesting of awards under the Value Creation Plan (VCP) introduced in 2010 as this was the only scheme to meet its performance criteria during the year. The 2014 values for Share Options in the above table are based upon the partial vesting of awards for Terry Scribbins under the 2013 LTIP. The basic pay of the Chief Executive Officer increased 2.5% in the year, this compared to an increase of 3% for the Company as a whole. DIRECTORS PENSION ARRANGEMENTS During the year the Company contributed to a money purchase pension scheme on behalf of the executive Directors. The number of Directors who are currently accruing benefits under a pension scheme is 3 (2013: 3). Contributions to a scheme on behalf of continuing Directors amount to 10% of the Director s basic salary. Both Mr Jones and Mr Boteler have sacrificed part of their salary in exchange for increased company pension contributions. Mr Webster has sacrificed his entitlement to company pension scheme contributions in exchange for an increase to his salary of an equal amount. DIRECTORS CONTRACTS The Executive Directors have rolling service contracts that are subject to either six or twelve months notice. The Chairman and non-executive Directors do not have contracts of service. DIRECTORS INTEREST IN SHARES OF THE COMPANY The Directors interests in the shares of the Company are set out in the Directors Report on page 26.

GOOCH & HOUSEGO PLC GOVERNANCE 35 SHARE OPTIONS EXERCISED 2014 Scheme Number of Market Exercise Exercise Total Share Options Price Price Date Gain No. p p 000 Executive G C W Jones VCP 190,347 655.0 0.0 19/12/13 1,247 G C W Jones VCP 50,000 660.0 0.0 25/09/14 330 A N Boteler VCP 132,648 700.0 0.0 08/01/14 929 A N Boteler CSOP 9,933 700.0 151.0 09/01/14 55 T Scribbins VCP 132,648 700.0 0.0 09/01/14 929 T Scribbins CSOP 9,933 700.0 151.0 08/01/14 55 T Scribbins LTIP 12,328 648.0 0.0 16/06/14 80 2013 Scheme Number of Market Exercise Exercise Total Share Options Price Price Date Gain No. p p 000 Executive G C W Jones 2004 95,000 433.0 133.5 04/3/2013 285 G C W Jones 2004 262,645 450.0 133.5 11/7/2013 831 G C W Jones VCP 35,000 450.0 0.0 11/7/2013 158 G C W Jones CSOP 9,934 461.0 151.0 18/1/2013 31 T Scribbins 2004 62,500 450.0 272.5 11/7/2013 111 T Scribbins VCP 132,648 450.0 0.0 11/7/2013 597 T Scribbins CSOP 9,934 461.0 151.0 18/1/2013 31 A N Boteler VCP 132,648 450.0 0.0 11/7/2013 597 A N Boteler CSOP 9,934 461.0 151.0 18/1/2013 31 The VCP and CSOP exercises in the above table include options disclosed in the Directors Remuneration table on page 34. SHARE OPTION SCHEMES At 30 September 2014 Gooch & Housego had two active share based incentive schemes. These are detailed below: GOOCH & HOUSEGO 2010 VALUE CREATION PLAN On 7 January 2010, the Company introduced a Value Creation Plan (the 2010 VCP ) under which key employees were granted a one-off award of units from an agreed total. These units had no intrinsic value on grant but gave participants an opportunity to be awarded Company shares proportionate to the value created for shareholders above the threshold value at the third anniversary of the plan. In accordance with the rules of the plan, on the third anniversary, being 7 January 2013, value created during the life of the plan over and above a pre-determined threshold value based on a share price of 2.00, was calculated. A share of that value (approximately 12%) was distributed amongst the participating members of senior management of the Group in the form of nil-cost share options (UK participants) and share awards (US participants). Half of the awards made were exercisable immediately and the balance after twelve months, subject to certain conditions. Executive Directors share options are listed below: Number of ordinary shares under option Date of Exercise At Awarded Exercised At Expiry grant price 01.10.2013 in year in year 30.09.2014 Date G C W Jones 07.01.2013 151.0p 9,933 - - 9,933 06.01.2020 G C W Jones 07.01.2013 0.0p 415,747 - (240,347) 175,400 06.01.2020 T Scribbins 07.01.2013 151.0p 9,933 - (9,933) - 06.01.2020 T Scribbins 07.01.2013 0.0p 132,648 - (132,648) - 06.01.2020 A N Boteler 07.01.2013 151.0p 9,933 - (9,933) - 06.01.2020 A N Boteler 07.01.2013 0.0p 132,648 - (132,648) - 06.01.2020 710,842 - (525,509) 185,333

36 GOVERNANCE GOOCH & HOUSEGO PLC THE GOOCH & HOUSEGO 2013 LONG TERM INCENTIVE PLAN The Gooch & Housego 2013 LTIP was adopted on 9 April 2013. Under the plan, awards will be made annually to key employees based on a percentage of salary. Subject to the satisfaction of the required TSR performance criteria and EPS financial performance, these grants will vest upon publication of the results of the Company three years after the grant date. The exercise price of all awards is nil. Number of ordinary shares under option Date of At Awarded Exercised Lapsed At Expiry grant 01.10.2013 in year in year 30.09.2014 Date G C W Jones 09.04.2013 56,876 - - - 56,876 06.01.2020 G C W Jones 01.12.2013-39,822 - - 39,822 06.01.2021 T Scribbins 09.04.2013 36,985 - (12,328) (24,657) - 06.01.2020 T Scribbins 01.12.2013-25,911 - (25,911) - 06.01.2021 A N Boteler 09.04.2013 35,076 - - - 35,076 06.01.2020 A N Boteler 01.12.2013-25,911 - - 25,911 06.01.2021 128,937 91,644 (12,328) (50,568) 157,685 The Gooch & Housego 2013 Long Term Incentive Plan specifies that the Company will operate within the standard dilution limit of 10% of the Company s issued share capital over a 10 year period, but excluding the dilution arising from the 2010 Value Creation Plan. During the year to 30 September 2014, 360,710 (2013: 340,749) was charged to the income statement in respect of the IFRS 2 share based payments charge on all share option schemes (valued using the Monte Carlo option pricing model) and 222,870 (2013: 340,000) in respect of employer s national insurance contributions, based on a year end share price of 6.74 (2013: 5.55). Paul Heal Chairman of the Remuneration Committee 2 December 2014

GOOCH & HOUSEGO PLC FINANCIAL STATEMENTS 37 Independent Auditors Report TO THE MEMBERS OF GOOCH & HOUSEGO PLC REPORT ON THE GROUP FINANCIAL STATEMENTS OUR OPINION In our opinion, Gooch & Housego plc s group financial statements (the financial statements ): give a true and fair view of the state of the group s affairs as at 30 September 2014 and of its profit and cash flows for the year then ended; have been properly prepared in accordance with International Financial Reporting Standards ( IFRSs ) as adopted by the European Union; and have been prepared in accordance with the requirements of the Companies Act 2006. WHAT WE HAVE AUDITED Gooch & Housego plc s financial statements comprise: the group balance sheet as at 30 September 2014; the group income statement and group statement of comprehensive income for the year then ended; the group statement of changes in equity for the year then ended; the group cash flow statement for the year then ended; and the notes to the financial statements, which include a summary of significant accounting policies and other explanatory information. The financial reporting framework that has been applied in the preparation of the financial statements is applicable law and IFRSs as adopted by the European Union. In applying the financial reporting framework, the directors have made a number of subjective judgements, for example in respect of significant accounting estimates. In making such estimates, they have made assumptions and considered future events. OPINION ON OTHER MATTER PRESCRIBED BY THE COMPANIES ACT 2006 In our opinion, the information given in the Strategic Report and the Directors Report for the financial year for which the financial statements are prepared is consistent with the financial statements. OTHER MATTERS ON WHICH WE ARE REQUIRED TO REPORT BY EXCEPTION ADEQUACY OF INFORMATION AND EXPLANATIONS RECEIVED Under the Companies Act 2006 we are required to report to you if, in our opinion, we have not received all the information and explanations we require for our audit. We have no exceptions to report arising from this responsibility. DIRECTORS REMUNERATION Under the Companies Act 2006 we are required to report to you if, in our opinion, certain disclosures of directors remuneration specified by law are not made. We have no exceptions to report arising from this responsibility. RESPONSIBILITIES FOR THE FINANCIAL STATEMENTS AND THE AUDIT Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland) ( ISAs (UK & Ireland) ). Those standards require us to comply with the Auditing Practices Board s Ethical Standards for Auditors. This report, including the opinions, has been prepared for and only for the company s members as a body in accordance with Chapter 3 of Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing. WHAT AN AUDIT OF FINANCIAL STATEMENTS INVOLVES We conducted our audit in accordance with ISAs (UK & Ireland). An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the group s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the financial statements. We primarily focus our work in these areas by assessing the directors judgements against available evidence, forming our own judgements, and evaluating the disclosures in the financial statements. We test and examine information, using sampling and other auditing techniques, to the extent we consider necessary to provide a reasonable basis for us to draw conclusions. We obtain audit evidence through testing the effectiveness of controls, substantive procedures or a combination of both. In addition, we read all the financial and non-financial information in the Annual Report and Accounts to identify material inconsistencies with the audited financial statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report. OTHER MATTER We have reported separately on the company financial statements of Gooch & Housego plc for the year ended 30 September 2014. Colin Bates (Senior Statutory Auditor) for and on behalf of PricewaterhouseCoopers LLP Chartered Accountants and Statutory Auditors Bristol 2 December 2014 OUR RESPONSIBILITIES AND THOSE OF THE DIRECTORS As explained more fully in the Statement of Directors Responsibilities, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view.

38 FINANCIAL STATEMENTS GOOCH & HOUSEGO PLC For the year ended 30 September 2014 Group Income Statement Note Revenue 7 70,056 63,252 Cost of revenue (41,706) (37,635) Gross profit 28,350 25,617 Research and Development (5,160) (4,913) Sales and Marketing (4,498) (4,666) Administration (10,026) (8,814) Other income and expenses 9 (271) 1,727 Operating profit 11 8,395 8,951 Finance income 12 8 15 Finance costs 12 (522) (623) Profit before income tax expense 7,881 8,343 Income tax expense 13 (2,482) (2,151) Profit for the year 5,399 6,192 Basic earnings per share 15 22.5p 27.7p Diluted earnings per share 15 22.3p 26.4p Reconciliation of operating profit to adjusted operating profit: Operating profit 8,395 8,951 Amortisation of acquired intangible assets 1,525 875 Acquisition costs - 164 Restructuring costs 1,555 278 Gain on bargain purchase of Spanoptic Limited (1,039) - Impairment of goodwill 1,538 - Adjusted operating profit 11,974 10,268 Group Statement of Comprehensive Income Note Profit for the year 5,399 6,192 Other comprehensive income / (expense) items that may be reclassified subsequently to profit or loss Fair value adjustment of interest rate swap net of tax 58 90 Currency translation differences 26 90 (364) Other comprehensive income / (expense) for the year net of tax 148 (274) Total comprehensive income for the year attributable to the shareholders of Gooch & Housego PLC 5,547 5,918

GOOCH & HOUSEGO PLC FINANCIAL STATEMENTS 39 For the year ended 30 September 2014 Group Balance Sheet Note Non-current assets Property, plant and equipment 16 24,140 21,456 Intangible assets 17 20,668 19,821 Deferred income tax assets 24 3,114 3,830 47,922 45,107 Current assets Inventories 18 14,663 13,390 Income tax assets 487 420 Trade and other receivables 19 13,005 12,706 Cash and cash equivalents 20 17,094 14,558 45,249 41,074 Current liabilities Trade and other payables 21 (11,829) (10,461) Borrowings 22 (8,048) (5,726) Income tax liabilities (244) (307) Provision for other liabilities and charges 23 (447) (271) (20,568) (16,765) Net current assets 24,681 24,309 Non-current liabilities Borrowings 22 (360) (3,113) Deferred income tax liabilities 24 (2,306) (1,330) Derivative financial instruments 30 - (34) (2,666) (4,477) Net assets 69,937 64,939 Shareholders equity Called up share capital 25 4,774 4,620 Share premium account 26 15,420 15,213 Merger reserve 26 2,671 2,671 Hedging reserve 26 (21) (79) Cumulative translation reserve 26 (770) (860) Retained earnings 26 47,863 43,374 Total equity 69,937 64,939 The financial statements for Gooch & Housego PLC, registered number 00526832, on pages 38 to 61 were approved by the Board of Directors on 2 December 2014 and signed on its behalf by: Gareth C W Jones Director Andrew N Boteler Director

40 FINANCIAL STATEMENTS GOOCH & HOUSEGO PLC For the year ended 30 September 2014 Group Statement of Changes in Equity Note Called up Share Merger Hedging Retained Total share premium reserve rederve earnings equity capital At 1 October 2012 4,382 14,311 2,671 (169) 37,371 58,566 Profit for the financial year - - - - 6,192 6,192 Other comprehensive income/(expense) for the year - - - 90 (364) (274) Total comprehensive income for the year - - - 90 5,828 5,918 Dividends 14 - - - - (1,229) (1,229) Proceeds from shares issued 238 902 - - (96) 1,044 Fair value of employee services - - - - 341 341 Tax credit relating to share option schemes - - - - 299 299 Total contributions by and distributions to owners 238 902 - - (685) 455 of the parent recognised directly in equity At 30 September 2013 4,620 15,213 2,671 (79) 42,514 64,939 At 1 October 2013 4,620 15,213 2,671 (79) 42,514 64,939 Profit for the financial year - - - - 5,399 5,399 Other comprehensive income for the year - - - 58 90 148 Total comprehensive income for the year - - - 58 5,489 5,547 Dividends 14 - - - - (1,569) (1,569) Proceeds from shares issued 154 207 - - (149) 212 Fair value of employee services - - - - 361 361 Tax credit relating to share option schemes - - - - 447 447 Total contributions by and distributions to owners 154 207 - - (910) (549) of the parent recognised directly in equity At 30 September 2014 4,774 15,420 2,671 (21) 47,093 69,937

GOOCH & HOUSEGO PLC FINANCIAL STATEMENTS 41 For the year ended 30 September 2014 Group Cash Flow Statement Cash flows from operating activities Cash generated from operations 15,298 10,130 Income tax paid (1,625) (882) Net cash generated from operating activities 13,673 9,248 Cash flows from investing activities Acquisition of subsidiaries, net of cash acquired (5,532) (22) Purchase of property, plant and equipment (1,909) (2,032) Sale of property, plant and equipment 26 67 Purchase of intangible assets (852) (202) Interest received 8 15 Net cash used in investing activities (8,259) (2,174) Cash flows from financing activities Drawdown of borrowings 4,832 - Repayment of borrowings (3,196) (3,394) Proceeds from issues of share capital 105 1,044 Dividends paid to ordinary shareholders (1,569) (1,229) Interest paid (569) (505) Net cash used in financing activities (397) (4,084) Net increase in cash, cash equivalents, revolving credit facility and bank overdraft 5,017 2,990 Cash, cash equivalents, revolving credit facility and bank overdraft at beginning of the year 12,088 9,235 Exchange losses on cash and bank overdrafts (11) (137) Cash, cash equivalents, revolving credit facility and bank overdraft at the end of the year 17,094 12,088 Cash, cash equivalents, revolving credit facility and bank overdrafts at the end of the year comprise Cash and cash equivalents 17,094 14,558 Revolving credit facility and overdraft - (2,470) Cash, cash equivalents, revolving credit facility and bank overdraft at the end of the year 17,094 12,088

42 FINANCIAL STATEMENTS GOOCH & HOUSEGO PLC For the year ended 30 September 2014 Notes to the Group Cash Flow Statement Reconciliation of cash generated from operations Profit before income tax 7,881 8,343 Adjustments for: - Amortisation of acquired intangible assets 1,525 875 - Amortisation of other intangible assets 164 168 - Gain on bargain purchase of Spanoptic Limited (1,039) - - Impairment of goodwill 1,538 - - Depreciation 2,644 1,949 - Loss on disposal of property, plant and equipment 21 91 - Share based payment obligations 361 341 - Finance income (8) (15) - Finance costs 522 623 Total 5,728 4,032 Changes in working capital - Inventories (538) (970) - Trade and other receivables 2,097 (882) - Trade and other payables 130 (393) Total 1,689 (2,245) Cash generated from operating activities 15,298 10,130 Reconciliation of net cash inflow to movements in net cash Increase in cash in the year 5,017 2,990 Drawdown of borrowings (4,832) - Repayment of borrowings 3,196 3,394 Changes in net cash resulting from cash flows 3,381 6,384 Finance leases acquired (257) - Translation differences (157) (342) Movement in net cash in the year 2,967 6,042 Net cash / (debt) at 1 October 5,719 (323) Net cash at 30 September 8,686 5,719 Analysis of net cash At 1 Oct Cash flow Exchange Non cash At 30 Sep 2013 movement movement 2014 000 Cash at bank and in hand 14,558 2,630 (94) - 17,094 Bank overdrafts and RCF (2,470) 2,387 83 - - 12,088 5,017 (11) - 17,094 Debt due within 1 year (3,256) (1,797) (86) (2,853) (7,992) Debt due after 1 year (3,113) - (60) 2,853 (320) Finance leases - 161 - (257) (96) Net cash 5,719 3,381 (157) (257) 8,686

GOOCH & HOUSEGO PLC FINANCIAL STATEMENTS 43 For the year ended 30 September 2014 Notes to the Financial Statements 1. GENERAL INFORMATION Gooch & Housego PLC (the Company ) is incorporated and domiciled in the United Kingdom. The Company is listed on the Alternative Investment Market ( AIM Market ) of the London Stock Exchange. The address of the registered office of the Company is given on page 70. Transactions, balances and unrealised gains on transactions between Group companies are eliminated. Unrealised losses are also eliminated but considered an impairment indicator of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group. The consolidated financial statements of the Group for the year ended 30 September 2014 comprise the Company, Gooch & Housego PLC, and its subsidiaries (together referred to as the Group ). A listing of the Company s major subsidiaries is set out on page 65. The Group is a manufacturer of specialist optoelectronic components, materials and systems and specialist instrumentation and life sciences devices. The Group has facilities in the United Kingdom, Germany and the United States. 2. BASIS OF PREPARATION These financial statements have been prepared under the historical cost convention as modified by financial assets and financial liabilities (including derivative instruments) at fair value and in accordance with International Financial Reporting Standards as adopted by the European Union ( IFRS ) and IFRIC Interpretations in issue at 30 September 2014, and with those parts of the Companies Act 2006 applicable to companies preparing financial statements in accordance with IFRS. 3. APPLICATION OF IFRS Adoption of new standards During the current reporting period there were no new standards or amendments which had a material impact on the net assets of the Group or on the presentation in the financial statements. In addition, standards or amendments issued but not yet effective are not expected to have a material impact on the net assets of the Group. However, the Group is closely monitoring the IASB projects on contract revenue recognition and the lease accounting overhaul as they could potentially have a material impact on the Group s results. 4. ACCOUNTING POLICIES The principal accounting policies adopted in the preparation of the financial statements are set out below. The policies have been consistently applied to all of the years presented, unless otherwise stated. Consolidation Subsidiaries are entities that are directly or indirectly controlled by the Group. Control exists where the Group has the power to govern the financial and operating policies of the entity so as to obtain benefits from its activities. In assessing control, potential voting rights that are currently exercisable or convertible are taken into account. The purchase method of accounting is used to account for the acquisition of subsidiaries by the Group. The cost of a business combination is measured as the fair value of the assets given, equity instruments issued, the fair value of contingent or deferred consideration and liabilities incurred or assumed at the date of exchange. Costs directly attributable to the business combination are charged to the income statement. The excess of the costs of a business combination over the fair value of the identifiable net assets acquired is recorded as goodwill. If the cost of a business combination is less than the fair value of the net assets of the subsidiary acquired, the difference is recognised directly in the income statement. Should the fair value of contingent or deferred consideration vary from the actual value on settlement date, the difference is recognised directly in the income statement. Segment reporting A business segment is a grouping of operations engaged in providing products or services that are subject to risks and returns that are different from those of other business segments. A market segment is engaged in providing products or services within a particular economic environment that are subject to risks and returns which are different from those of segments operating in other economic environments. The chief operating decision maker in determining a business or operating segment is the Board of Directors. Foreign currency translation a. Functional and presentation currency The consolidated financial statements are presented in Pounds Sterling, which is the Group s presentation currency. Items included in the financial statements of each of the Group s subsidiaries are measured using the currency of the primary economic environment in which the entity operates (the functional currency ). b. Transactions and balances Foreign currency transactions are translated into an entity s functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at balance sheet exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement, except when deferred in equity as qualifying cash flow hedges and qualifying net investment hedges. c. Subsidiaries The results and financial position of subsidiaries that have a functional currency different from the presentation currency are translated into the presentation currency as follows: assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet; income and expenses for each income statement are translated at average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the rate on the dates of the transactions); and all resulting exchange differences are recognised in other comprehensive income and as a separate component of equity. On consolidation, exchange differences arising from the translation of the net investment in foreign operations, and of borrowings and other currency instruments designated as hedges of such investments, are taken to shareholders equity. When a foreign operation is partially disposed of or sold, exchange differences that were recorded in equity are recognised in the income statement as part of the gain or loss on sale. Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate.

44 FINANCIAL STATEMENTS GOOCH & HOUSEGO PLC For the year ended 30 September 2014 Property, plant and equipment Property, plant and equipment is stated at historical cost less depreciation. Historical cost includes expenditure that is directly attributable to the acquisition of the items. No depreciation is charged on freehold land or capital work in progress. Certain plant used in the manufacturing process which is constructed from precious metals is not depreciated. Depreciation on other assets is calculated to allocate their cost over their estimated useful lives, as follows: Freehold buildings 2-3% Straight line Leasehold property over term of lease Straight line Plant and machinery 10-20% Straight line Fixtures, fittings 10-33% Straight line and computers Motor vehicles 25% Reducing balance The assets residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date. Where an asset s carrying amount is greater than its estimated recoverable amount, the asset s carrying amount is written down immediately to its recoverable amount. The recoverable amount is the higher of an asset s fair value less costs to sell or an asset s value in use. Intangible assets a. Goodwill Goodwill represents the excess of the cost of a business combination over the fair value of the net identifiable assets of the acquired business. Goodwill arising from business combinations is included in intangible assets. Goodwill is tested annually for impairment and carried at cost less accumulated impairment losses. The impairment testing requires an estimation of the value in use of the Cash-generating unit (the CGU ) to which goodwill is allocated using appropriately discounted cash flow projections. Any impairment is recognised immediately as an expense to the income statement and is not subsequently reversed. For the purpose of impairment testing a CGU is defined as either a business segment or an operating entity, as appropriate. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold. b. Patents, Trademarks and Licenses Internally incurred costs associated with the filing and perfection of patents and trademarks are capitalised and carried at cost less accumulated amortisation. Amortisation is calculated using the straight line method to allocate the cost over their useful economic lives and are charged to Research and Development in the income statement. Acquired patents, trademarks and licences are shown at historical cost. Patents, trademarks and licences have a finite useful life and are carried at cost less accumulated amortisation. Amortisation is calculated using the straight line method to allocate the cost over their useful economic lives. c. Computer software Costs associated with developing or maintaining computer software programmes are recognised as an expense as incurred. Costs that are directly associated with the development of identifiable and unique software products controlled by the Group, and that will probably generate economic benefits exceeding costs beyond one year, are capitalised and recognised as intangible assets. Costs include the software development employee costs and an appropriate portion of relevant overheads. Acquired computer software and licences are capitalised on the basis of the costs incurred to acquire and bring to use the specific software. Capitalised software costs are amortised using the straight line method over their estimated useful lives of up to 5 years and charged to Administration in the income statement. d. Research and development Expenditure on research activities, undertaken with the prospect of gaining new scientific or technical knowledge and understanding, is recognised as an expense as incurred. Development costs incurred after the point at which the commercial and technical feasibility of the product have been proven, and the decision to complete the development has been taken and resources made available, are capitalised. The expenditure capitalised includes the cost of materials, direct labour and an appropriate proportion of overheads. Capitalised development expenditure is stated at cost less accumulated amortisation and impairment losses. Development costs are amortised using the straight line method over their estimated useful life lives, which is typically 7 years, and are charged to Research and Development in the income statement. e. Acquired intangibles Other acquired intangible assets are stated at fair value less accumulated amortisation and impairment losses. The useful life of each of these assets is assessed based on the differing natures of each of the intangible assets acquired. Amortisation is charged on a straight-line basis over the estimated useful life of the assets acquired and charged to administration in the Income Statement. Customer relationships up to 5 years Brand names up to 5 years Acquired patents, trademarks and licences up to 3 years Government grants Government grants are accounted for on an accruals basis. Grants are credited to the income statement over the life of the project. Where grants are used to fund the acquisition of property, plant and equipment, the grant is initially credited to deferred income then credited to the income statement over the estimated economic life of the asset. Impairment of non-financial assets The Group assesses at each balance sheet date whether an asset may be impaired. If any such indicator exists, the Group tests for impairment by estimating the recoverable amount which is the higher of the value in use and the fair value less costs to sell. If the recoverable amount is less than the carrying value of the asset, the asset is impaired and the carrying value is reduced to its recoverable amount. In addition to this, assets with indefinite lives are tested for impairment annually. Non-financial assets other than goodwill which have suffered an impairment are reviewed for possible reversal of the impairment at each balance sheet date. Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except those with maturities greater than 12 months from the balance sheet date. These are classified as non-current assets. Loans and receivables are classified as trade and other receivables in the balance sheet. Inventories Inventories are stated at the lower of weighted average cost and net realisable value. The cost of finished goods and work in progress comprises design costs, raw materials, direct labour, other direct costs and related production overheads (based on normal operating capacity). It excludes

GOOCH & HOUSEGO PLC FINANCIAL STATEMENTS 45 For the year ended 30 September 2014 borrowing costs. Net realisable value is the estimated selling price in the ordinary course of business, less applicable variable selling expenses. Long term contract balances included in work in progress comprise costs incurred on long term contracts, net of any amounts transferred to trading expenditure, after deducting foreseeable losses and related payments on account. Costs include all direct material and labour costs incurred in bringing a contract to its state of completion at the year end. Provisions for estimated losses on contracts are made in the period in which such losses are foreseen. Long term contract balances do not include attributable profit. The amount by which customer billings exceed the revenue recognised on a contract is shown as a payment on account. Trade receivables Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment. A provision for impairment of trade receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of the receivables. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganisation, and default or delinquency in payments (more than 30 days overdue) are considered indicators that the trade receivable may be impaired. The amount of the provision is the difference between the asset s carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. The carrying amount of the asset is reduced through the use of an allowance account, and the amount of the loss is recognised in the income statement within Administration costs. When a trade receivable is uncollectible, it is written off against the allowance account for trade receivables. Subsequent recoveries of amounts previously written off are credited against Administration costs in the income statement. Cash and cash equivalents Cash and cash equivalents for the purpose of the cash flow statement includes cash in hand, deposits held on call with banks with original maturities of three months or less, and the drawn down balance of the $8m Revolving Credit Facility. The drawn down balance of the $8m Revolving Credit Facility in 2013 is shown within borrowings in current liabilities in the balance sheet (this facility was undrawn as at 30 September 2014). Trade payables Trade payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method. Borrowings Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently stated at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the income statement over the period of the borrowings using the effective interest method. Borrowing costs which are directly attributable to the acquisition, construction or production of a qualifying asset are capitalised as part of the cost of that asset. Borrowing costs are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the balance sheet date. Financial instruments Financial instruments are initially recognised at fair value on the date that a contract is entered into and are subsequently remeasured at their fair value. The Group documents the relationship between the hedging instrument and the hedged item and, on a periodic basis, assesses whether the hedge is effective. The fair value of the financial instrument used for hedging purposes is disclosed in Note 30. Movements on the hedging reserve in shareholders equity is disclosed in Note 26. The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognised in equity. Taxation Income tax on the profit or loss for the year comprises current and deferred tax. Current tax is the expected tax payable on the taxable income for the year using rates enacted at the balance sheet date, and any adjustments to tax payable in respect of prior years. Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, the deferred income tax is not accounted for, if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled. Deferred income tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised. Deferred income tax is provided on temporary differences arising on investments in subsidiaries, except where the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred income tax is recognised in the income statement except to the extent that it relates to items recognised directly in other comprehensive income and equity, in which case it is recognised in other comprehensive income and equity. In the UK and US, the Company is entitled to a tax deduction for amounts treated as compensation on exercise of certain employee share options under each jurisdiction s tax rules. As explained under Share options below, a compensation expense is recorded in the Company s income statement over the period from the grant date to the vesting date of the relevant options. As there is a temporary difference between the accounting and tax bases, a deferred income tax asset is recorded. The deferred income tax asset arising is calculated by comparing the estimated amount of tax deduction to be obtained in the future (based on the Company s share price at the balance sheet date) with the cumulative amount of the compensation recorded in the income statement. If the amount of estimated future tax deduction exceeds the cumulative amount of the remuneration expense at the statutory rate, the excess is recorded directly in equity. Employee benefits a. Pension obligations The Group operates money purchase pension schemes for UK employees and Section 401(k) plans for US employees. The Group pays contributions to publicly or privately administered pension insurance plans on a mandatory, contractual or voluntary basis. The Group has no further payment obligations once the contributions have been paid. The contributions are recognised as an employee benefit expense in the income statement when

46 FINANCIAL STATEMENTS GOOCH & HOUSEGO PLC For the year ended 30 September 2014 they are due. Prepaid contributions are recognised as an asset to the extent that a cash refund or a reduction in the future payments is available. b. Profit share and bonus plans The Group recognises a liability and an expense for bonuses and profit-sharing, based on a formula that takes into consideration the profit attributable to the Group s shareholders after certain adjustments. The Group recognises a provision where contractually obliged or where there is a past practice that has created a constructive obligation. c. Share options The Group operates a number of share option schemes. In accordance with IFRS 2 the fair value of the employee services received in exchange for the grant of the options is recognised as an expense in the income statement. The total amount to be expensed over the vesting period is determined by reference to the fair value of the options granted, excluding the impact of any non-market vesting conditions (for example, profitability targets). Non-market vesting conditions are included in assumptions about the number of options that are expected to vest. Employer s National Insurance in the United Kingdom and equivalent taxes in other jurisdictions are payable on the exercise of certain share options. In accordance with IFRS 2, this is treated as a cash-settled transaction. A provision is made, calculated using the fair value of the Company s shares at the balance sheet date, pro-rated over the vesting period of the options. At each balance sheet date, for awards with non market vesting conditions, the entity revises its estimates of the number of options that are expected to vest. It recognises the impact of the revision to original estimates, if any, in the income statement, with a corresponding adjustment to equity. The fair value of the options under the Gooch & Housego 2010 Value Creation Plan and the Gooch & Housego 2013 Long Term Incentive Plan were determined by using the Monte Carlo option pricing model. The proceeds received net of any directly attributable transaction costs are credited to share capital (nominal value) and share premium when the options are exercised. Provisions Provisions are recognised when the Group has a present legal or constructive obligation as a result of past events; it is probable that an outflow of resources will be required to settle the obligation; and the amount has been reliably estimated. The Group monitors and assesses its warranty provision requirement on a continuing basis. The provision for other liabilities and charges provides for the anticipated cost of repair and rectification of products under warranty, based on historical repair and replacement costs. In addition the Directors will also assess expected changes in future costs based on current information. Leases Leases which transfer substantially all the risks and rewards of ownership of an asset are treated as a finance lease. Assets held under a finance lease are capitalised at their fair value at the inception of the lease and depreciated over the estimated useful economic life of the asset or lease term if shorter. Finance charges are associated with the finance lease are expensed in proportion to the capital amount outstanding. All other leases are classified as operating leases. Operating lease rentals are expensed in equal annual amounts over the lease term. Share capital Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds. Revenue recognition Revenue comprises the fair value of the consideration received or receivable for the sale of goods and services in the ordinary course of the Group s activities. Revenue is shown net of value-added tax, returns, rebates and discounts and after eliminating sales within the Group. The Group recognises revenue when the amount of revenue can be reliably measured, it is probable that future economic benefits will flow to the entity and when specific criteria have been met for each of the Group s activities as described below. The amount of revenue is not considered to be reliably measurable until all contingencies relating to the sale have been resolved. a. Sale of goods Revenue is recognised when the risks and rewards of the underlying sale have been transferred to the customer, and when collectability of the related receivable is reasonably assured. Depending on the terms of business, this occurs either on the dispatch/delivery of the goods supplied or on acceptance by the customer. b. Long term contracts Revenue is recognised on long term contracts by reference to the stage of completion of the contract activity at the balance sheet date. Revenue and profits are determined by estimating the outcome of the contract and determining the costs and profit attributable to the stage of completion. Where the outcome of the contract cannot be reliably estimated, contract costs are recognised as an expense when incurred and revenue is recognised to the extent of the costs incurred that are expected to be recoverable. In both cases, any expected contract loss is recognised immediately. Revenue from long term contracts recognised in the year ended 30 September 2014 was nil (2013: 2,272,000) c. Interest income Interest income is recognised on a time-proportion basis using the effective interest method. Dividend distribution Dividend distributions to the Company s shareholders are recognised as a liability in the Group s financial statements in the period in which the dividends are approved by the Company s shareholders. 5. FINANCIAL RISK MANAGEMENT Capital risk management Management considers capital as equity, as shown in the Group balance sheet, excluding net debt. The Group s objectives when managing capital are to safeguard the Group s ability to continue as a going concern, to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. The Board is satisfied that these objectives have been met during the year. Actions taken during the year to achieve these objectives are outlined in the Chief Executive Officer s Review. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares, sell assets to reduce debt and vary the level of debt financing. While the Group s debt to equity ratio is consistently monitored, changes in the Group s need for capital and the selection of the source and

GOOCH & HOUSEGO PLC FINANCIAL STATEMENTS 47 For the year ended 30 September 2014 funding of capital are assessed against a number of criteria which may have a direct effect on the Group debt to equity ratio. The Group s capital needs include, but are not solely limited to, its investment in non-current assets; investment in working capital; and acquisition of businesses, technologies and other intangible assets. The criteria against which the Group s capital needs are assessed include, but are not limited to, availability of and cost of debt financing; ability to raise equity financing at an acceptable share price; and ratio of debt to equity. Financial risks The Group s activities expose it to a variety of financial risks: market risk (including foreign exchange risk and cash flow interest rate risk), credit risk and liquidity risk. The Group s overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Group s financial performance. Where considered appropriate, the Company will use derivative financial instruments to hedge risk exposures during the year. i. Market risk a. Foreign exchange risk The Group operates internationally and is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to the US Dollar. Foreign exchange risk arises from future commercial transactions; recognised assets and liabilities; and net investments in foreign operations. The Group has certain investments in foreign operations, whose net assets are exposed to foreign currency translation risk. Currency exposure arising from the net assets of the Group s foreign operations is managed primarily through borrowings denominated in the relevant foreign currencies. No financial derivatives have been entered into to manage foreign exchange exposure. As a significant amount of the Group s profit is earned by its US subsidiaries, the Group s profit is sensitive to movements in the US Dollar exchange rate. If the average US Dollar exchange rate for the year had been consistent with the closing exchange rate at 30 September 2013, with all other variables constant, post tax profits for the year would have been 88,000 higher (2013: 69,000 lower) as a result of the translation in US Dollars. Equity is more sensitive to movement in the US Dollar exchange rate as a significant amount of the Group s net assets are held in the Group s US subsidiaries. If the US Dollar weakened by 10% against Pound Sterling with all other variables held constant, the net assets of the Group would be 4,284,000 lower (2013: 3,234,000 lower). If the US Dollar strengthened by 10% against Pound Sterling with all other variables held constant, the net assets of the Group would be 5,239,000 higher (2013: 3,952,000 higher). b. Cash flow interest rate risk The Group has cash balances of 17.1m which are held in interest bearing current accounts. The Group s income and operating cash flows are substantially independent of changes in market interest rates. The Group s interest rate risk arises from its long term borrowings and revolving credit facility. A 1% increase in the cost of borrowing would have resulted in an annualised increase in interest expense of 46,000 (2013: 43,000) had the Group s borrowings been in place throughout the year. Borrowings issued at variable interest rates expose the Group to cash flow interest rate risk. The Group uses an interest rate swap to hedge a proportion of the interest rate risk. During 2013 and 2014, the Group s borrowings at variable interest rates were denominated in Pound Sterling and US Dollars as detailed in Note 22. ii. Credit risk Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations. It arises principally from the Group s trade receivables. a. Trade and other receivables The management of credit risk exposure is the responsibility of each business unit which has credit policies in place to mitigate the risk. The credit policies seek to verify a customer s credit worthiness prior to trading and maintain the level of trading within agreed credit limits. Changes to credit limits require authorisation in accordance with internal control policies. The Group is exposed to concentration of credit risk. The Group s top ten customers in 2014 accounted for 28% of the Group s revenue (2013: 33%). No individual customer made up more than 6% of revenue in either the current or prior year. The Group s trade receivables are analysed in note 19. b. Cash Cash is held in current and deposit accounts with financial institutions which have credit ratings of A- or greater. iii. Liquidity risk Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group aims to achieve a balance between certainty of funding and a flexible, cost effective borrowing structure. The Company s facilities comprise an $18 million US Dollar denominated term loan of which $4.5m is outstanding (2013: $6.8m), a 3.1 million Sterling denominated term loan of which 1.6m is outstanding (2013: 2.0m), an $8 million revolving credit facility (undrawn at 30 September 2014 (2013: $4m drawn)) and at 30 September 2014 an $8 million capital expenditure facility of which $6m was drawn. These are analysed in Notes 22 and 29. These facilities have been refinanced after the year end, as detailed in note 34. The Group aims to ensure that there are sufficient funds or credit lines available to supplement cash flows generated from trading to meet known obligations in the next twelve months. 6. CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS The preparation of financial statements in accordance with International Financial Reporting Standards (IFRS) requires the Directors to make critical accounting estimates and judgments that affect the amounts reported in the financial statements and accompanying notes. These estimates and judgments are continually evaluated and are based on historical experiences and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The resulting accounting estimates will on occasions fail to equal actual results. The estimates and assumptions that have significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are outlined below.

48 FINANCIAL STATEMENTS GOOCH & HOUSEGO PLC For the year ended 30 September 2014 Revenue recognition Revenue from long term contracts is recognised on a percentage-ofcompletion method basis. Use of this method requires an estimation of the total project resource requirement and also an estimation of the cost to complete and the assessment of potential losses on uncompleted contracts. Provisions for income taxes The Group is subject to income taxes in numerous jurisdictions. Significant judgement is required in determining the worldwide provision for income taxes. There are many transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business. The Group recognises liabilities for anticipated tax audit issues based on estimates of whether additional taxes will be due. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the income tax and deferred income tax provisions in the period in which such determination is made. Share options In accordance with IFRS 2, share options are measured at fair value at the date of grant. The fair value determined is then expensed in the Group income statement on a straight line basis over the vesting period, with a corresponding adjustment in equity. The fair value of the options under the Gooch & Housego 2010 Value Creation Plan and the Gooch & Housego 2013 Long Term Incentive Plan were measured by using the Monte Carlo option pricing model. The valuation of share options requires several judgements to be made in respect of the number of options that are expected to be exercised. Details of the assumptions included in the valuation of options are disclosed in Note 27. Impairment of goodwill The Group tests goodwill for impairment at least annually. This requires an estimation of the value in use of the Cash Generating Units (the CGUs ) to which goodwill is allocated. As set out in Note 17, estimating the value in use requires the Group to make an estimate of the expected future cash flows from the CGUs and also to choose a suitable discount rate in order to calculate the present values of those cash flows. Provision for impairment of trade receivables The Group assesses trade receivables for impairment which requires an estimation of the likelihood of payment forfeiture by customers. In making this assessment, the Directors will consider the payment history of the customer as well as the customer s future viability. Inventory provision The Group continually monitors and assesses the provision for old and slow moving inventory. Factors considered by the Directors include the expected future usage and the potential obsolescence and deterioration of the Inventory. Warranty provision The Group monitors and assesses its warranty provision requirement on a continuing basis. In addition to considering historical repair and replacement costs, the Directors will also assess expected changes in future costs based on current information. Going Concern The Directors are required to make an assessment of the Group s ability to continue to trade as a going concern. In making this assessment the Directors make critical estimates and judgements in respect of expected future revenues, costs, investment requirements and debt servicing obligations. The Directors have given this matter due consideration and have concluded that it is appropriate to prepare the Group financial statements on a going concern basis. The two main considerations were as follows: Group cash flow During the year ended 30 September 2014, the Group was highly cash generative due to a strong trading performance. The Group expects to continue generating cash from operating activities. Bank Facilities The Group maintains a regular and ongoing constructive dialogue with its bankers and keeps them advised of Group developments and progress against its business plan. The Royal Bank of Scotland plc has committed significant facilities to the Group which are available through May 2019, and which have been refinanced following the year end as disclosed in note 34. At 30 September 2014, the Group had available cash resources, based on translating the revolving credit facility at the closing exchange rate for the US Dollar to Pound Sterling, of 22.0m (2013: 17.0m).

GOOCH & HOUSEGO PLC FINANCIAL STATEMENTS 49 For the year ended 30 September 2014 7. SEGMENTAL ANALYSIS The Company s segmental reporting reflects the information that management uses within the business. The business is divided into four market sectors, being Aerospace & Defence, Life Sciences, Industrial and Scientific Research, together with the Corporate cost centre. The industrial business segment primarily comprises the industrial laser market for use in the semiconductor and microelectronic industries, but also includes other industrial applications such as metrology and telecommunications. Scientific Research covers academic and government funded research including major multi-national projects. Aerospace Life Industrial Scientific Corporate Total & Defence Sciences Research For year ended 30 September 2014 Revenue Total revenue 18,786 7,318 44,248 4,139-74,491 Inter and intra-division - - (4,435) - - (4,435) External revenue 18,786 7,318 39,813 4,139-70,056 Divisional expenses (15,612) (6,083) (31,207) (3,713) (214) (56,829) EBITDA¹ 3,174 1,235 8,606 426 (214) 13,227 EBITDA % 16.9% 16.9% 21.6% 10.3% - 18.9% Depreciation and amortisation (522) (270) (1,702) (152) (162) (2,808) Operating profit before amortisation of acquired intangible assets 2,652 965 6,904 274 (376) 10,419 Amortisation of acquired intangible assets - - - - (2,024) (2,024) Operating profit 2,652 965 6,904 274 (2,400) 8,395 Operating profit margin % 14.1% 13.2% 17.3% 6.6% - 12.0% Add back Melbourne closure costs 79 59 1,155 91-1,384 Operating profit excluding Melbourne 2,731 1,024 8,059 365 (2,400) 9,779 closure costs Adjusted profit margin % 14.5% 14.0% 20.2% 8.8% - 14.0% ¹EBITDA = Earnings before interest, tax, depreciation and amortisation Management have added back the cost of the Melbourne site closure in the above analysis. This has been shown because the Directors consider the analysis to be more meaningful excluding the impact of this non-recurring expense. As restated Aerospace Life Industrial Scientific Corporate Total & Defence Sciences Research For year ended 30 September 2013 Revenue Total revenue 17,273 7,353 38,179 4,281-67,086 Inter and intra-division - - (3,834) - - (3,834) External revenue 17,273 7,353 34,345 4,281-63,252 Divisional expenses (14,652) (5,799) (27,055) (3,679) (127) (51,312) EBITDA¹ 2,621 1,554 7,290 602 (127) 11,940 EBITDA % 15.2% 21.1% 21.2% 14.1% - 18.9% Depreciation and amortisation (550) (220) (907) (143) (294) (2,114) Operating profit before amortisation of acquired intangible assets 2,071 1,334 6,383 459 (421) 9,826 Amortisation of acquired intangible assets - - - - (875) (875) Operating profit 2,071 1,334 6,383 459 (1,296) 8,951 Operating profit margin % 12.0% 18.1% 18.6% 10.7% - 14.2% The above analysis has been restated to reflect the allocation of corporate expenses on a consistent basis with that adopted in respect of the year ended 30 September 2014. All of the amounts recorded are in respect of continuing operations.

50 FINANCIAL STATEMENTS GOOCH & HOUSEGO PLC For the year ended 30 September 2014 Analysis of net assets/(liabilities) by location: 2014 2014 2013 2013 Assets Liabilities Net Assets Assets Liabilities Net Assets United Kingdom 38,387 (12,388) 25,999 38,258 (11,418) 26,840 USA 54,282 (10,345) 43,937 47,751 (9,776) 37,975 Continental Europe 486 (497) (11) 162 (42) 120 Asia Pacific 16 (4) 12 10 (6) 4 93,171 (23,234) 69,937 86,181 (21,242) 64,939 For the year to 30 September 2014 non-current asset additions were 1.7m (2013: 1.1m) for the UK, for the USA 0.6m (2013: 1.1m) and for Europe 0.5m (2013: nil). There were no additions to non-current assets in respect of the Asia Pacific region (2013: nil). The value of non-current assets in the USA was 26.4m (2013: 26.1m), the United Kingdom 20.8m (2013: 19.1m) and Europe 0.5m (2013: nil). There were no non-current assets in the Asia-Pacific region. Analysis of revenue by destination: United Kingdom 14,412 9,481 USA 29,657 30,213 Continental Europe 14,425 13,821 Asia Pacific and Other 11,562 9,737 Total revenue 70,056 63,252 8. EXPENSES BY NATURE Note Raw materials and consumables 15,200 13,559 Changes in stocks of finished goods and work in progress (277) (309) Employee costs 10 30,281 29,662 Other operating charges 11,354 10,128 Depreciation 2,644 1,949 Amortisation of other intangible assets 164 164 Gain on bargain purchase Spanoptic Limited (1,039) - Impairment of goodwill 1,538 - Amortisation of acquired intangible assets 1,525 875 Other income and expenses 9 271 (1,727) 61,661 54,301 9. OTHER INCOME AND EXPENSES Grants receivable 1,076 1,339 (Loss) / gain on disposal of property, plant and equipment (21) 10 Other (expense) / income (130) 378 Restructuring costs (1,196) - (271) 1,727

GOOCH & HOUSEGO PLC FINANCIAL STATEMENTS 51 For the year ended 30 September 2014 10. EMPLOYEE COSTS Wages and salaries 24,334 23,599 Social security costs 2,151 2,106 Share based payment charge 361 341 Medical and other insurance 2,446 2,719 Other pension costs 989 897 30,281 29,662 The monthly average number of employees during the year was: Manufacturing 448 403 Sales, finance and administration 176 164 624 567 Key management compensation Salaries and other short-term benefits 3,877 4,047 Share based payments 361 341 Pension scheme contributions 201 219 Redundancy payments - 82 4,439 4,689 Key management comprise the Executive Board and the senior operational staff. 11. OPERATING PROFIT Operating profit is stated after charging: Fees payable to the Company s auditors for the audit of the parent company and consolidated financial statements 38 38 Fees payable to the Company s auditors and its associates for other services: - audit of the Company s subsidiaries pursuant to legislation 87 87 - taxation compliance services 21 45 - taxation advisory services 10 20 - services related to corporate finance transactions - 33 - due diligence services related to grant funding 23 - - half year review 5 5 Net losses on foreign exchange 215 96 Operating lease rentals 930 1,076 12. FINANCE INCOME AND COSTS Finance income comprises: - Bank interest 8 15 Finance costs comprise: - Bank interest 513 622 - Finance lease interest 9 1 522 623

52 FINANCIAL STATEMENTS GOOCH & HOUSEGO PLC For the year ended 30 September 2014 13. INCOME TAX EXPENSE Analysis of tax charge in the year Current taxation UK Corporation tax 1,446 1,263 Overseas tax 630 238 Adjustments in respect of prior year tax charge (165) (304) Total current tax 1,911 1,197 Deferred tax Origination and reversal of temporary differences 49 677 Adjustments in respect of prior year deferred tax 504 234 Impact of UK tax rate change to 20% (2013: 20%) 18 43 Total deferred tax 571 954 Income tax expense per income statement 2,482 2,151 The current taxation for the year is higher (2013: higher) than the standard rate of corporation tax in the UK. An explanation of the differences is detailed below: Profit before income tax expense 7,881 8,343 Profit at the effective standard rate of tax of 22% for the year (2013: 23.5%) 1,734 1,961 Permanent differences 1 (74) Recognition of tax losses not previously recognised - (2) Adjustments in respect of foreign tax rates 390 293 Adjustments in respect of prior year tax charge (165) (304) Impact of UK tax rate change to 20% on deferred tax 18 43 Adjustments in respect of prior year deferred tax 504 234 Total income tax expense 2,482 2,151 Factors affecting the future tax charge Overseas tax losses of 3.1m (2013: 2.2m) and UK tax losses of 0.8m (2013: 1.0m) are available to offset against future profits of the Group. The utilisation of these losses is not sufficiently certain to recognise a deferred tax asset. The main rate of UK corporation tax will reduce to 20% from 1 April 2015. The majority of the deferred tax assets and liabilities are either located outside the UK or expected to be realised or settled after 1 April 2015 and accordingly the deferred tax assets and liabilities attributable to UK companies have been recognised at 20%. 14. DIVIDENDS Final 2013 dividend paid in 2014: 4.0p per share (Final 2012 dividend paid in 2013: 3.2p per share) 950 712 2014 Interim dividend paid: 2.6p per share (2013: 2.3p) 619 517 1,569 1,229 The Directors propose a final dividend of 4.6p per share making the total dividend paid and proposed in respect of the 2014 financial year 7.2p (2013: 6.3p). 15. EARNINGS PER SHARE The calculation of earnings per 20p Ordinary Share is based on the profit for the year using as a divisor the weighted average number of Ordinary Shares in issue during the year. The weighted average number of shares for the year ended 30 September is given below: Number of shares used for basic earnings per share 23,984,536 22,376,650 Dilutive shares 213,581 1,097,927 Number of shares used for dilutive earnings per share 24,198,117 23,474,577

GOOCH & HOUSEGO PLC FINANCIAL STATEMENTS 53 For the year ended 30 September 2014 A reconciliation of the earnings used in the earnings per share calculation is set out below: 000 pence per share 000 pence per share Basic earnings per share 5,399 22.5p 6,192 27.7p Amortisation of acquired intangible assets (net of tax) 1,144 4.8p 650 2.9p Goodwill impairment 1,538 6.4p - - Gain on bargain purchase (1,039) (4.3p) - - Acquisition costs (net of tax) - - 122 0.5p Restructuring costs (net of tax) 1,467 6.2p 206 0.9p Total adjustments net of income tax expense 3,110 13.1p 978 4.3p Adjusted basic earnings per share 8,509 35.6p 7,170 32.0p Basic diluted earnings per share 5,399 22.3p 6,192 26.4p Adjusted diluted earnings per share 8,509 35.2p 7,170 30.5p Basic and diluted earnings per share before amortisation and other adjustments has been shown because, in the opinion of the Directors, it provides a useful measure of the trading performance of the Group. 16. PROPERTY, PLANT AND EQUIPMENT Capital work Freehold land Leasehold Plant and Fixtures, Motor Total in progress land and property machinery fittings and vehicles buildings computer 000 Cost or valuation At 1 October 2012 927 8,947 3,218 19,055 2,498 30 34,675 Additions 803 31 217 887 35-1,973 Disposals - - - (110) (1) - (111) Reclassification (767) - 31 702 1 12 (21) Exchange rate differences - (3) (11) (52) (2) - (68) At 30 September 2013 963 8,975 3,455 20,482 2,531 42 36,448 Additions 578 45 178 991 117-1,909 Acqusitions - 886-2,655 21 31 3,593 Disposals (20) - - (630) (77) (13) (740) Reclassification (269) - 83 131 6 - (49) Exchange rate differences (2) (1) (2) (25) (2) - (32) At 30 September 2014 1,250 9,905 3,714 23,604 2,596 60 41,129 Accumulated depreciation At 1 October 2012-1,219 718 10,040 1,268 25 13,270 Charge for the year - 180 250 1,317 196 6 1,949 Disposals - - - (166) (1) - (167) Exchange rate differences - (2) (9) (44) (5) - (60) At 30 September 2013-1,397 959 11,147 1,458 31 14,992 Charge for the year - 198 301 1,935 200 10 2,644 Disposals - - - (600) (74) (4) (678) Exchange rate differences - 1 4 26 - - 31 At 30 September 2014-1,596 1,264 12,508 1,584 37 16,989 Net book value At 1 October 2012 927 7,728 2,500 9,015 1,230 5 21,405 At 30 September 2013 963 7,578 2,496 9,335 1,073 11 21,456 At 30 September 2014 1,250 8,309 2,450 11,096 1,012 23 24,140 At 30 September 2014, plant and equipment purchased under a hire purchase or finance lease agreement had a cost of 286,000 and net book value of 122,000. At 30 September 2013, there was no plant and equipment purchased under a hire purchase or finance lease agreement. No interest was capitalised in the year (2013: Nil).

54 FINANCIAL STATEMENTS GOOCH & HOUSEGO PLC For the year ended 30 September 2014 17. INTANGIBLE ASSETS Goodwill Acquired Capitalised Software Total intangible R&D, Patents and other assets and licences intangibles 000 Cost At 1 October 2012 21,502 8,279 605 1,498 31,884 Additions - - 64 54 118 Disposals - - - 20 20 Exchange rate differences (33) (20) (1) (2) (56) At 30 September 2013 21,469 8,259 668 1,570 31,966 Additions 248 2,958 847 77 4,130 Reclassification - - - (13) (13) Exchange rate differences (29) (28) 7 (1) (51) At 30 September 2014 21,688 11,189 1,522 1,633 36,032 Accumulated amortisation and impairment At 1 October 2012 4,116 5,436 547 1,065 11,164 Charge for the year - 875 23 141 1,039 Exchange rate differences - (54) - (4) (58) At 30 September 2013 4,116 6,257 570 1,202 12,145 Charge for the year 1,538 1,525 32 132 3,227 Reclassification - - - (10) (10) Exchange rate differences - 25 (17) (6) 2 At 30 September 2014 5,654 7,807 585 1,318 15,364 Net book value At 1 October 2012 17,386 2,843 58 433 20,720 At 30 September 2013 17,353 2,002 98 368 19,821 At 30 September 2014 16,034 3,382 937 315 20,668 Goodwill is allocated according to each operating entity as follows: Cleveland ( 2.1m), Melbourne ( 1.8m), Norderstedt ( 0.1m), Ilminster ( 0.6m), Torquay ( 1.3m), Moorpark ( 5.1m), Boston ( 4.8m) and Constelex ( 0.2m). Goodwill is tested annually for impairment and carried at cost less accumulated impairment losses. The impairment testing requires an estimation of the value in use of the CGU. The value in use calculations use pre-tax cash flow projections based on the latest projections approved by the Board for year one. For the purposes of the impairment review, the following key assumptions were made in respect of the cash flows beyond year one: Projected gross profit margins of 22% to 44% Average growth in EBITDA to 2019 of up to 10%, and 2% thereafter 10.6% pre-tax discount rate used to discount cash flows The projected gross profit margin and average growth is based on past performance and the Directors expectations for the foreseeable future. Following the closure of the Group s research facility in New Jersey, the goodwill on that cash generating unit of 0.6m has been fully impaired in the year ended 30 September 2014. The Boston cash generating unit made a small loss during the year ended 30 September 2014. However, the business continues to contribute to the Group s Space Photonics activities and management expect activity levels to increase. The impairment calculation for the Boston cash generating unit therefore utilises a specific set of growth assumptions based on forecast revenue streams resulting in an average annual forecast EBITDA of 0.4m in the period to 30 September 2019. The headroom on the impairment calculation (of 1.1m) would be reduced to zero if the average annual EBITDA were to reduce to 0.3m. In recognition of the result for the year, an impairment charge of 1.0m was booked in the year ended 30 September 2014. The Directors are satisfied that no further impairment is necessary, although should the forecast results not be met an impairment may become necessary.

GOOCH & HOUSEGO PLC FINANCIAL STATEMENTS 55 For the year ended 30 September 2014 18. INVENTORIES Raw materials 4,311 4,988 Work in progress 7,070 5,624 Finished goods 3,282 2,778 14,663 13,390 The cost of inventories recognised as an expense and included in cost of revenue amounted to 41.4m (2013: 35.5m). The movement in the inventories provision is as follows: At 1 October 3,831 3,216 Acquired 100 - Increase in provision 266 623 Exchange rate movement (2) (8) At 30 September 4,195 3,831 19. TRADE AND OTHER RECEIVABLES Trade receivables 11,018 10,193 Other receivables 671 223 Grant funding held in trust account 768 1,510 Prepayments 548 780 13,005 12,706 The carrying amount of the Group s trade and other receivables is denominated in the following currencies: Pound Sterling 3,558 2,647 US Dollar 7,721 7,928 Euro 1,722 2,128 Yen 4 3 13,005 12,706 The ageing of trade receivables by due date is as follows: Current 8,511 8,341 1 to 3 months 2,202 1,914 Over 3 months 505 97 11,218 10,352 Less provision for impairment (200) (159) Net trade receivables 11,018 10,193 Movement on the provision for impairment of trade receivables is as follows: At 1 October 159 235 Utilisation of provision (10) (128) Increase in provision 64 60 Release of provision no longer required (14) (7) Exchange rate movement 1 (1) At 30 September 200 159

56 FINANCIAL STATEMENTS GOOCH & HOUSEGO PLC For the year ended 30 September 2014 20. CASH AND CASH EQUIVALENTS Cash at bank and on hand 17,094 14,558 21. TRADE AND OTHER PAYABLES Trade payables 3,275 3,137 Other taxation and social security 1,154 307 Grant funding held in trust account 768 1,510 Accruals 6,632 5,507 11,829 10,461 22. BORROWINGS Current: Bank borrowings 7,992 5,726 Finance leases 56-8,048 5,726 Non-current: Bank borrowings 320 3,113 Finance leases 40-360 3,113 Total borrowings 8,408 8,839 The carrying values of the bank borrowings, overdraft and finance leases are not materially different from their fair values. Gooch & Housego s primary lending bank is The Royal Bank of Scotland plc. The Group s facilities comprise of an $18m dollar denominated term loan and a 3.1m sterling denominated term loan. At 30 September 2014, the balance outstanding for the US Dollar facility was $4.5m (2013: $6.8m) and for the Sterling facility 1.6m (2013: 2.0m). In addition, the Group has an undrawn revolving credit facility of US$8.0m (2013: $4.0m drawn) and a capital expenditure facility of US$8.0m, of which $6.0m was drawn at 30 September 2014 (2013: undrawn). The facilities above were committed until April 2015 and attracted an interest rate of between 2.25% and 3.00% above LIBOR dependent upon the Company s leverage ratio. The facilities have been refinanced in November 2014 as disclosed in note 34. Gooch & Housego (Florida) LLC, a US subsidiary, has a US Dollar loan of $573,000 (2013: $628,000) which is secured by a charge over the property it occupies. The loan is repaid in monthly instalments totalling $55,000 per annum. Interest is payable at 1.6% above 30 day US$ LIBOR. Maturity profile of bank and other borrowings Within one year 8,048 5,726 Between two and five years 172 2,895 More than five years 188 218 8,408 8,839 23. PROVISION FOR OTHER LIABILITIES AND CHARGES The movements in the Group provision for other liabilities and charges during the year are as follows: At 1 October 271 357 Acquired with Spanoptic Limited 41 - Utilised during year - (141) Charged to the income statement 132 55 Exchange movements 3 - At 30 September 447 271 The Group provision for other liabilities and charges provides for the anticipated cost of repair and rectification of products under warranty, based on known exposures and historical occurrences.

GOOCH & HOUSEGO PLC FINANCIAL STATEMENTS 57 For the year ended 30 September 2014 24. DEFERRED TAX ASSETS AND LIABILITIES The movements in the Group s deferred tax assets and liabilities during the year are as follows: At 1 October 2,500 3,610 Charged to the income statement (571) (954) Acquired with Spanoptic Limited (138) - Arising on acquired intangible assets (585) - Debited directly to equity (399) (174) Exchange movements 1 18 At 30 September 808 2,500 The deferred tax provided for in the financial statements is disclosed under the following balance sheet headings and can be analysed as follows: Deferred income tax assets Intangible assets 654 503 Share options 660 1,205 Provisions 1,794 1,139 Unutilised losses - 868 Other timing differences 6 115 3,114 3,830 Deferred income tax liabilities Property, plant and equipment (1,432) (1,221) Intangible assets (874) (109) (2,306) (1,330) Deferred tax balance at 30 September 808 2,500 Overseas tax losses of 3.1m (2013: 2.2m) and UK tax losses of 0.8m (2013: 1.0m) are available to offset against future profits of the Group. The Group has not recognised a deferred income tax asset of 1.2m (2013: 0.9m) in respect of these losses due to uncertainty as to whether they would be utilised within the foreseeable future. No deferred tax has been provided in relation to unremitted earnings from overseas subsidiaries on the basis that no incremental tax charge is currently anticipated to arise upon remittance of these earnings to the UK. 25. CALLED UP SHARE CAPITAL The movements in the Group s deferred tax assets and liabilities during the year are as follows: Number Number Issued and fully paid At 1 October 23,098,864 21,910,774 4,620 4,382 Shares issued and fully paid 772,346 1,188,090 154 238 At 30 September 23,871,210 23,098,864 4,774 4,620 During the year 757,965 shares (2013: 1,188,090 shares) were allotted under share option schemes. The remaining 14,381 shares were issued as part of the consideration for the acquisition of Constelex Technology Enablers Limited.

58 FINANCIAL STATEMENTS GOOCH & HOUSEGO PLC For the year ended 30 September 2014 26. RESERVES Share Merger Hedging Cumulative Retained premium reserve reserve translation earnings account reserve 000 At 1 October 2013 15,213 2,671 (79) (860) 43,374 Profit for the financial year - - - - 5,399 Dividends paid - - - - (1,569) Shares issued 207 - - - (149) Fair value of share options - - - - 361 Tax credit relating to share options - - - - 447 Change in fair value of interest rate swap - - 58 - - Currency translation differences - - - 90 - At 30 September 2014 15,420 2,671 (21) (770) 47,863 27. SHARE OPTIONS The Company operates the Gooch & Housego 2010 Value Creation Plan (the 2010 VCP ) and the Gooch & Housego 2013 Long Term Incentive Plan (the 2013 LTIP ). The Gooch & Housego 2010 Value Creation Plan Under the 2010 VCP, key employees were granted a one-off award of units from an agreed total. Three executive Directors were awarded 44 units out of the total pool of 64 units and eight key employees hold the remaining 20 units. These units had no intrinsic value on grant but gave participants an opportunity to be awarded Company shares proportionate to the value created for shareholders above the threshold value at the third anniversary of the plan. In accordance with the rules of the plan, on the third anniversary, being 7 January 2013, value created during the life of the plan, over and above a pre-determined threshold value based on a share price of 2.00, was calculated. A share of that value (approximately 12%) was distributed amongst the participating members of senior management of the Group in the form of nil-cost share options (UK participants) and share awards (US participants). Half of the awards made were exercisable immediately and the balance after twelve months, subject to certain conditions. Details of the award are as follows:- Total number of market value (151p) Company Share Option Plan (CSOP) options awarded: 158,936 Total number of nil-cost share options awarded: 1,380,566 Out of the total options, the executive Directors were awarded 59,601 CSOP share options and 981,339 Nil-cost share options. The remuneration report provides further details on the share options awarded and exercised during the financial year. The 2010 VCP award was valued using the Monte Carlo option pricing model. The expected volatility of 73.5% used in the model was based on the historical volatility of the Company s share price over the three years prior to 7 January 2010. A risk free rate of 2.1% was used. The total fair value of all the units granted to the participants in the 2010 VCP was 1,614,640. The Gooch & Housego 2013 Long Term Incentive Plan On 9 April 2013, a new Long Term Incentive Plan was adopted. Under the plan, awards will be made annually to key employees based on a percentage of salary. Subject to the satisfaction of the required TSR performance criteria and EPS financial performance, these grants will vest upon publication of the results of the Company three years after the grant date. On 9 April 2013, 178,960 options were awarded under the 2013 LTIP plan to a number of key employees, including the three executive Directors of the Company. On 1 December 2013, a further 144,875 options were awarded under the 2013 LTIP plan to a number of key employees, including the Executive Directors. The Remuneration Committee report provides further details on the share options awarded and exercised during the financial year. The 2013 Long Term Incentive Plan Awards were valued using the Monte Carlo option pricing model. The expected volatility used in the model was based on the historical volatility of the Company s share price over the three years prior to the grant date. Grant date 9 Apr 2013 1 Dec 2013 Expected volatility 43% 33% Risk free rate 2.7% 0.9% Fair value ( ) 429,795 441,252

GOOCH & HOUSEGO PLC FINANCIAL STATEMENTS 59 For the year ended 30 September 2014 A reconciliation of total share option movements is shown below: Number Weighted Number Weighted average average exercise price exercise price Outstanding at 1 October 1,195,102 17.0p 665,727 156.5p Awarded 144,875-1,718,462 15.6p Exercised (799,010) 13.1p (1,189,087) 87.7p Lapsed (50,568) - - - Outstanding at 30 September 490,399 3.1p 1,195,102 17.0p Exercisable at 30 September 229,460-207,115 - The weighted average fair value of options granted in the year was 371.0p per option (2013: 119.0p per option). For the options exercised, the average market price was 447.7p per share. Share options outstanding at the end of the year have the following expiry dates and exercise prices: Expiry date Exercise Number of share options price per share option 2004 Scheme 22-Jul-2014 133.5p - 39,281 2010 VCP 6-Jan-2020 0.0p 219,527 897,397 2010 CSOP 6-Jan-2020 151.0p 9,933 79,464 2013 LTIP 8-Apr-2023 0.0p 260,939 178,960 490,399 1,195,102 The total charge for the year relating to share options was 360,710 (2013: 340,749), all of which related to equity-settled share based payment transactions. 28. OPERATING LEASES The future aggregate minimum lease payments under non-cancellable operating leases are as follows: Within one year 1,135 1,142 Between two to five years 2,560 2,437 3,695 3,579 29. FINANCIAL INSTRUMENTS The Group s financial instruments comprise an interest rate swap, bank borrowings, cash at bank, finance leases and various items such as trade receivables and trade payables that directly arise from its operations. The main risks arising from the Group s financial instruments are interest rate risk, liquidity risk and foreign currency risk. The Board s policy on these risks is set out in note 5. Operations are financed through a mixture of retained profits, cash reserves, bank borrowings and finance leases. Other than finance leases the Board s policy is to use variable rate borrowings whenever possible. The currency profile for the Group s financial assets and liabilities are set out below. Financial assets Financial liabilities Pound Sterling 6,622 4,010 1,624 1,993 US Dollars 8,667 9,457 6,784 6,846 Euro 1,789 1,083 - - Yen 16 - - - 17,094 14,550 8,408 8,839 The financial assets listed in the above table are subject to floating rates of interest. The Interest rates on the financial liabilities are provided in Note 22. The financial assets include cash at bank but exclude short-term receivables, prepayments and other receivables. The financial liabilities includes bank borrowings and finance leases. Other short-term payables are excluded from this disclosure.

60 FINANCIAL STATEMENTS GOOCH & HOUSEGO PLC For the year ended 30 September 2014 30. DERIVATIVE FINANCIAL INSTRUMENTS Interest rate swap 27 103 Current portion 27 69 Non-current portion - 34 Total liability 27 103 The notional principal amount of the outstanding interest swap contract at 30 September 2014 was $4.5 million (2013: $9.0 million). The end date for the interest swap is 1 April 2015. At 30 September 2014, the fixed rate of the interest rate swap was 2.14% and the floating rate was US dollar LIBOR. The fair value of the swap is a mark to market calculation based on future interest rate expectations over the life of the swap. This is the level 2 method of determining fair value as defined by IFRS 7. 31. CAPITAL COMMITMENTS Authorised and contracted but not provided for 14 14 All capital commitments relate to property, plant and equipment. 32. RELATED PARTY TRANSACTIONS In addition to duties performed in his role as a non-executive director, Dr Peter Bordui has provided additional consultancy services at the request of the company. Fees during the year to 30 September 2014 amounted to 18,360 (2013: 17,520). At the balance sheet date the balance outstanding totalled 4,590 (2013: 4,380). The transactions are performed in the normal course of business on an arm s length basis and the outstanding balance is unsecured. No other material contracts or arrangements have been entered into during the year, nor existed at the end of the year, in which a director or key manager had a material interest. Details of key management compensation are given in note 10. 33. ACQUISITIONS Spanoptic Limited On 15 October 2013, the Group completed the acquisition of the entire issued share capital of Spanoptic Limited, a Glenrothes, Scotland based manufacturer of precision optical components. The acquisition strengthened the Group s position in its core markets. The consideration for the acquisition was 6.6m, paid in cash on completion. The fair value of the assets acquired is summarised as follows: Provisional fair value 000 Property, plant and equipment 3,575 Intangible assets 2,631 Cash 1,006 Trade and other receivables 1,768 Inventory 923 Trade and other payables (866) Current and deferred tax liabilities (1,141) Hire purchase and finance lease liabilities (257) Net assets acquired 7,639 Consideration paid: Cash 6,600 Gain on bargain purchase (1,039) The fair value of the intangible assets represents the estimated fair value of Spanoptic s customer relationships and its brand. These have been valued using a discounted cash flow model. The gain on bargain purchase of 1.0 million, representing the excess of net assets acquired over the consideration paid, has been credited to the income statement. Post-acquisition, the acquired business contributed 6.6 million of revenue and 1.4 million of profit after tax excluding central costs to the consolidated income statement.

GOOCH & HOUSEGO PLC FINANCIAL STATEMENTS 61 For the year ended 30 September 2014 Constelex Technology Enablers Limited On 26 November 2013, the Group completed the acquisition of the entire issued share capital of Constelex Technology Enablers Limited, designer and manufacturer of advanced photonic systems based in Athens, Greece. The acquisition strengthened the Group s position in its core markets. The consideration for the acquisition was 650,000 ( 539,000), comprising 400,000 ( 333,000) in cash, followed by 250,000 ( 207,000) in Gooch & Housego shares when the activities are relocated to the UK. The fair value of the assets acquired is summarised as follows: Provisional fair value 000 Property, plant and equipment 18 Intangible assets 327 Cash 401 Trade and other receivables 813 Trade and other payables (1,202) Current and deferred tax liabilities (65) Net assets acquired 292 Consideration paid: Cash 333 Deferred share consideration 207 Total consideration 540 Goodwill 248 The deferred share consideration is payable to the vendors when they relocate to the UK. 125,000 of the deferred consideration was issued on 24 February 2014 and the remainder was issued on 13 November 2014. The fair value of the intangible assets represents the estimated fair value of future secured grant funding based on a discounted cash flow valuation. Goodwill reflects items not separately recognised, including the expertise of Constelex s employees and their contacts in target markets. Post-acquisition, the acquired business contributed 36,000 of revenue and 16,000 of profit after tax to the consolidated income statement. 34. POST BALANCE SHEET EVENTS On 13 November 2014, the remaining 125,000 of deferred consideration in respect of the acquisition of Constelex Technology Enablers Limited was settled in the form of share capital. On 14 November 2014, the Company refinanced its debt facilities with the Royal Bank of Scotland. The Group now has a committed revolving credit facility of $15m and an uncommitted flexible acquisition facility of $20m available until 30 April 2019. Upon inception of the new facility, all existing RBS borrowings were repaid and $8m of the new revolving credit facility was drawn.

62 FINANCIAL STATEMENTS GOOCH & HOUSEGO PLC Independent Auditors Report TO THE MEMBERS OF GOOCH & HOUSEGO PLC REPORT ON THE GROUP FINANCIAL STATEMENTS OUR OPINION In our opinion, Gooch & Housego plc s company financial statements (the financial statements ): give a true and fair view of the state of the company s affairs as at 30 September 2014; have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and have been prepared in accordance with the requirements of the Companies Act 2006. WHAT WE HAVE AUDITED Gooch & Housego plc s financial statements comprise: the company balance sheet as at 30 September 2014; and the notes to the financial statements, which include a summary of significant accounting policies and other explanatory information. The financial reporting framework that has been applied in the preparation of the financial statements is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice). In applying the financial reporting framework, the directors have made a number of subjective judgements, for example in respect of significant accounting estimates. In making such estimates, they have made assumptions and considered future events. OPINION ON OTHER MATTER PRESCRIBED BY THE COMPANIES ACT 2006 In our opinion, the information given in the Strategic Report and the Directors Report for the financial year for which the financial statements are prepared is consistent with the financial statematements. OTHER MATTERS ON WHICH WE ARE REQUIRED TO REPORT BY EXCEPTION ADEQUACY OF ACCOUNTING RECORDS AND INFORMATION AND EXPLANATIONS RECEIVED Under the Companies Act 2006 we are required to report to you if, in our opinion: we have not received all the information and explanations we require for our audit; or adequate accounting records have not been kept by the company, or returns adequate for our audit have not been received from branches not visited by us; or the financial statements are not in agreement with the accounting records and returns. We have no exceptions to report arising from this responsibility. DIRECTORS REMUNERATION Under the Companies Act 2006 we are required to report to you if, in our opinion, certain disclosures of directors remuneration specified by law are not made. We have no exceptions to report arising from this responsibility. RESPONSIBILITIES FOR THE FINANCIAL STATEMENTS AND THE AUDIT OUR RESPONSIBILITIES AND THOSE OF THE DIRECTORS As explained more fully in the Statement of Directors Responsibilities, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland) ( ISAs (UK & Ireland) ). Those standards require us to comply with the Auditing Practices Board s Ethical Standards for Auditors. This report, including the opinions, has been prepared for and only for the company s members as a body in accordance with Chapter 3 of Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing. WHAT AN AUDIT OF FINANCIAL STATEMENTS INVOLVES We conducted our audit in accordance with ISAs (UK & Ireland). An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the company s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the financial statements. We primarily focus our work in these areas by assessing the directors judgements against available evidence, forming our own judgements, and evaluating the disclosures in the financial statements. We test and examine information, using sampling and other auditing techniques, to the extent we consider necessary to provide a reasonable basis for us to draw conclusions. We obtain audit evidence through testing the effectiveness of controls, substantive procedures or a combination of both. In addition, we read all the financial and non-financial information in the Annual Report and Accounts to identify material inconsistencies with the audited financial statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report. OTHER MATTER We have reported separately on the group financial statements of Gooch & Housego plc for the year ended 30 September 2014. Colin Bates (Senior Statutory Auditor) for and on behalf of PricewaterhouseCoopers LLP Chartered Accountants and Statutory Auditors Bristol 2 December 2014

GOOCH & HOUSEGO PLC FINANCIAL STATEMENTS 63 For the year ended 30 September 2014 Company Balance Sheet Note FIXED ASSETS Investments 5 19,170 12,025 Tangible assets 6 8,677 9,153 27,847 21,178 CURRENT ASSETS Debtors 7 4,241 6,400 Cash at bank and in hand 4,925 2,779 9,166 9,179 CREDITORS: amounts falling due within one year 9 (3,130) (2,907) NET CURRENT ASSETS 6,036 6,272 TOTAL ASSET LESS CURRENT LIABILITIES 33,883 27,450 CREDITORS: amounts falling due after more than one year 10 - (1,512) Provision for liabilities 8 (44) - NET ASSETS 33,839 25,938 CAPITAL AND RESERVES Called up share capital 12 4,774 4,620 Share premium account 13 15,420 15,213 Revaluation reserve 13 238 243 Profit and loss account 13 13,407 5,862 TOTAL SHAREHOLDERS FUNDS 14 33,839 25,938 The financial statements on pages 63 to 69, were approved by the Board of Directors on 2 December 2014 and signed on its behalf by: Gareth C W Jones Director Andrew N Boteler Director

64 FINANCIAL STATEMENTS GOOCH & HOUSEGO PLC For the year ended 30 September 2014 Notes to the Company Financial Statements 1. COMPANY ACCOUNTING POLICIES Basis of preparation The financial statements have been prepared on a going concern basis under the historical cost convention as modified by the revaluation of certain fixed assets and have been prepared in accordance with applicable United Kingdom Accounting Standards and the Companies Act 2006. The accounting policies have been consistently applied over the period reported. Pension schemes The Company operates a money purchase pension scheme for Directors and staff. The assets of the scheme are held in separately administered funds. The pension charge represents contributions payable to the funds during the year. Expenses under the plan are charged to the profit and loss account as incurred. Share options The Company operates the Gooch & Housego 2010 Value Creation Plan (the 2010 VCP ) and the Gooch & Housego 2013 Long Term Incentive Plan (the 2013 LTIP ). These plans are subject to both market and non-market related vesting conditions. Option grants are measured at fair value which is then charged to the profit and loss account on a straight line basis over the vesting period. Adjustments are made to reflect expected and actual forfeiture during the vesting period due to failure to satisfy service conditions or non-market performance conditions. The fair value is determined using the Monte Carlo option pricing model for the Gooch & Housego 2010 Value Creation Plan and the Gooch & Housego PLC 2013 Long Term Incentive Plan. The grant by the Company of options over its equity instruments to the employees of subsidiary undertakings in the group is treated as a capital contribution. The fair value of employee services received, measured by reference to the grant date fair value, is recognised over the vesting period as an increase to investment in subsidiary undertakings, with a corresponding credit to equity. Foreign currencies Monetary assets and liabilities denominated in foreign currencies are translated into sterling at rates ruling at the balance sheet date. Exchange differences which arise on the settlement of transactions and on the translation of other monetary assets and liabilities are dealt with in the profit and loss account. Tangible fixed assets Tangible fixed assets are stated at historical purchase cost less accumulated depreciation. Cost includes the original purchase price of the asset and the costs attributable to bringing the asset to its working condition for its intended use. Depreciation is calculated to write down the cost or valuation of the fixed assets, over their useful lives, at the following annual rates: Freehold buildings 2-3% Straight line Plant and machinery 10-20% Straight line Fixtures, fittings and computers 10-33% Straight line Capitalised software and licences 25-33% Straight line Investments Investments are stated at cost less provision for any impairment in value. Where overseas borrowing is required to finance the investment in overseas subsidiaries, the investment is retranslated at the exchange rate ruling at the balance sheet date. Deferred taxation Deferred taxation is provided in full on all material timing differences. Deferred tax assets are recognised where their recovery is more likely than not. Deferred tax assets and liabilities have not been discounted. Financial liabilities Finance costs associated with financial liabilities are charged to the profit and loss account over the life of the instrument. Issue costs are accounted for as a deduction against the gross borrowings received and are amortised over the life of the instrument. Financial instruments The Company has not used derivative financial instruments to hedge its exposure to currency risk. It has entered into an interest rate swap to hedge its exposure to interest rate movements, the fair value of which was a liability of 27,000 at 30 September 2014 (2013: 103,000 liability). The Company does not apply hedge accounting to this swap. Amounts receivable or payable in respect of this derivative are recognised in interest expense over the period of the contract. Changes in the derivative s fair value are not recognised.

GOOCH & HOUSEGO PLC FINANCIAL STATEMENTS 65 For the year ended 30 September 2014 2. COMPANY PROFIT AND LOSS ACCOUNT Gooch & Housego PLC has taken advantage of section 408(3) of the Companies Act 2006 and has not included its own profit and loss account in these financial statements. The Company s profit after tax was 8,291,000 (2013: 1,978,000 loss). Fees payable to the Company auditors for the year amounted to 15,800 (2013: 15,800). 3. DIRECTORS EMOLUMENTS Directors remuneration 728 873 Medical and other insurances 18 45 Directors pension scheme contributions 60 40 806 958 The aggregate emoluments of the highest paid Director including gain on exercise of share options were 1,857,000 (2013: 1,652,000). The aggregate gain on Directors share option exercises in the year was 3,725,000 (2013: 2,672,000). The number of Directors who are accruing retirement benefits under a money purchase pension scheme is 3 (2013: 3). Further details regarding the Directors remuneration are shown in the Remuneration Committee Report. 4. DIVIDENDS Final 2013 dividend paid in 2014: 4.0p per share. (Final 2012 dividend paid in 2013: 3.2p per share) 950 712 2014 Interim dividend paid: 2.6p per share (2013: 2.3p) 619 517 1,569 1,229 The Directors propose a final dividend of 4.6p per share making the total dividend paid and proposed in respect of the 2014 financial year 7.2p (2013: 6.3p). Should the final dividend be approved at the Company Annual General Meeting, cut-off dates for payment are: - Record date 19 December 2014 - Payment date 5 March 2015 5. INVESTMENTS Cost and net book value at 1 October 12,025 12,003 Additions 7,145 22 Cost and net book value at 30 September 19,170 12,025 The additions in the year related to the acquisitions of Spanoptic ( 6.6m) and Constelex ( 0.5m). The subsidiary companies at 30 September 2014, all of which are wholly owned either directly or indirectly, are listed below: Company Name % ownership of Location and country Activity ordinary shares of incorporation Gooch & Housego (UK) Limited 100% Ilminster, UK Manufacturer of acousto-optic products and precision optics Gooch & Housego (Torquay) Limited 100% Torquay, UK Manufacturer of fibre-optic products Spanoptic Limited 100% Glenrothes, UK Manufacturer of precision optics Gooch & Housego (Deutschland) GmbH 100% Norderstedt, Germany Provider of sales and customer service functions Constelex Technology Enablers Limited 100% Athens, Greece Designer and manufacturer of advanced photonic systems Gooch & Housego (Ohio) LLC 100% Cleveland, USA Manufacturer of electro-optic products and crystals Gooch & Housego (California) LLC 100% Moorpark, USA Manufacturer of precision optics Gooch & Housego (Florida) LLC 100% Melbourne, USA Manufacturer of acousto-optic products Optronic Laboratories LLC 100% Orlando, USA Manufacturer of instruments for measuring optical radiation EM4 Inc. 100% Boston, USA Manufacturer of fibre optics products Gooch & Housego (Palo Alto) LLC 100% Palo Alto, USA Manufacturer of acousto-optic, electro-optic and fibre optic components and systems Gooch & Housego Japan KK 100% Nagoya, Japan Provider of sales and customer service functions The directors believe that the carrying value of the investments is supported by their underlying net assets.

66 FINANCIAL STATEMENTS GOOCH & HOUSEGO PLC For the year ended 30 September 2014 6. TANGIBLE ASSETS Freehold Plant and Fixtures, Capitalised Total land and machinery fittings and Computer buildings computers Software and licences 000 Cost or valuation At 1 October 2013 6,150 3,926 3,194 462 13,732 Additions 28 40 3 79 150 At 30 September 2014 6,178 3,966 3,197 541 13,882 Accumulated depreciation At 1 October 2013 924 1,262 1,973 420 4,579 Charge for the year 107 263 230 26 626 At 30 September 2014 1,031 1,525 2,203 446 5,205 Net book value At 30 September 2013 5,226 2,664 1,221 42 9,153 At 30 September 2014 5,147 2,441 994 95 8,677 7. DEBTORS Note Amounts owed by group undertakings 2,912 4,737 Prepayments and accrued income 92 256 Group tax relief receivable 1,237 1,151 Deferred tax asset 8-256 4,241 6,400 Amounts owed by group undertakings are unsecured and due within one year. Non-trading amounts owed by US group undertakings are charged interest at the US LIBOR rate applicable for the year. Non-trading amounts owed by UK group undertakings are charged interest at the UK LIBOR rate applicable for the year. 8. DEFERRED TAX The movement in the Company deferred tax asset / (liability) during the year was as follows: At 1 October 256 579 Charge to profit and loss account (87) (280) Charged to reserves (213) - Impact of tax rate change to 20% in 2013 - (43) At 30 September (44) 256 The deferred tax provided for in the financial statements can be analysed as follows: Property, plant and equipment (171) (119) Share options - 221 Other timing differences 127 154 (44) 256 9. CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR Note Bank loans 11 1,529 443 Trade creditors 108 185 Amounts owed to group undertakings 126 76 Taxation and Social Security 378 195 Accruals and deferred income 989 2,008 3,130 2,907 Amounts owed to group undertakings are unsecured and due within one year. Non-trading amounts owed to US group undertakings are charged interest at the US LIBOR rate applicable for the year. Non-trading amounts owed to UK group undertakings are charged interest at the UK LIBOR rate applicable for the year.

GOOCH & HOUSEGO PLC FINANCIAL STATEMENTS 67 For the year ended 30 September 2014 10. CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR Note Bank borrowings falling due after more than one year 11-1,512 11. BANK BORROWINGS At 30 September 2014, the Sterling facility was to be repaid by a final instalment of 1,550,000 in April 2015. Instalments are payable at six monthly intervals and interest is payable at 2.5% above UK LIBOR. This facility has been refinanced in November as disclosed in note 17. Maturity profile of bank borrowings Within one year 1,529 443 Between two and five years - 1,512 1,529 1,955 Currency profile of bank borrowings Pound sterling 1,529 1,955 12. CALLED UP SHARE CAPITAL Number Number Allotted, issued and fully paid At 1 October 23,098,864 21,910,774 4,620 4,382 Shares issued and fully paid 772,346 1,188,090 154 238 At 30 September 23,871,210 23,098,864 4,774 4,620 During the year 757,965 shares (2013: 1,188,090 shares) were allotted under share option schemes. The remaining 14,381 shares were issued as part of the consideration for the acquisition of Constelex Technology Enablers Limited. 13. RESERVES Share Revaluation Profit Premium reserve and loss account account 000 At 1 October 2013 15,213 243 5,862 Profit for the financial year - - 8,291 Tax credit on share options - - 609 Transferred to profit and loss account - (5) 5 Fair value of employee services - - 361 Shares issued 207 - (152) Dividends paid - - (1,569) At 30 September 2014 15,420 238 13,407 14. RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS FUNDS Profit for the financial year 8,291 (1,978) Deferred taxation credited to reserves 609 - Shares issued and fully paid 209 1,044 Fair value of employee services 361 341 Dividends paid (1,569) (1,229) Net addition to / (reduction of) shareholders funds 7,901 (1,822) Opening shareholders funds 25,938 27,760 Closing shareholders funds 33,839 25,938

68 FINANCIAL STATEMENTS GOOCH & HOUSEGO PLC For the year ended 30 September 2014 15. SHARE OPTIONS The Company operates the Gooch & Housego 2010 Value Creation Plan (the 2010 VCP ) and the Gooch & Housego 2013 Long Term Incentive Plan (the 2013 LTIP). The Gooch & Housego 2010 Value Creation Plan Under the 2010 VCP, key employees were granted a one-off award of units from an agreed total. Three executive Directors were awarded 44 units out of the total pool of 64 units and eight key employees hold the remaining 20 units. These units had no intrinsic value on grant but gave participants an opportunity to be awarded Company shares proportionate to the value created for shareholders above the threshold value at the third anniversary of the plan. In accordance with the rules of the plan, on the third anniversary, being 7 January 2013 value created during the life of the plan, over and above a pre-determined threshold value based on a share price of 2.00, has been calculated. A share of that value (approximately 12%) was distributed amongst the participating members of senior management of the Group in the form of nil-cost share options (UK participants) and share awards (US participants). Half of the awards made are exercisable immediately and the balance after twelve months, subject to certain conditions. Details of the award are as follows:- Total number of market value (151p) Company Share Option Plan (CSOP) share options awarded: 158,936 Total number of nil-cost share options awarded: 1,380,566 Out of the total options, the executive Directors were awarded 59,601 CSOP share options and 981,339 Nil-cost share options. The Remuneration Committee report provides further details on the share options awarded and exercised during the financial year. The 2010 VCP award was valued using the Monte Carlo option pricing model. The expected volatility of 73.5% used in the model is based on the historical volatility of the Company s share price over the three years prior to 7 January 2010. The risk free rate of 2.1% was used. The total fair value of all the units granted to the participants in the 2010 VCP was 1,614,640. The Gooch & Housego 2013 Long Term Incentive Plan On 9 April 2013 a new Long Term Incentive Plan was adopted. Under the plan, awards will be made annually to key employees based on a percentage of salary. Subject to the satisfaction of the required TSR performance criteria and EPS financial performance, these grants will vest upon publication of the results of the Company three years after the grant date. On 9 April 2013, 178,960 options were awarded under the 2013 LTIP new plan to a number of key employees, including the three executive Directors of the Company. On 1 December a further 144,875 options were awarded. The remuneration report provides further details on the share options awarded and exercised during the financial year. The 2013 Long Term Incentive Plan Awards were valued using the Monte Carlo option pricing model. The expected volatility used in the model was based on the historical volatility of the Company s share price over the three years prior to the grant date. Grant date 9 Apr 2013 1 Dec 2013 Expected volatility 43% 33% Risk free rate 2.7% 0.9% Fair value ( ) 429,795 441,252 A reconciliation of total share option movements is shown below: Number Weighted Number Weighted average average exercise exercise price price Outstanding at 1 October 1,195,102 17.0p 665,727 156.5p Awarded 144,875-1,718,462 15.6p Exercised (799,010) 13.1p (1,189,087) 87.7p Lapsed (50,568) - - - Outstanding at 30 September 490,399 3.1p 1,195,102 17.0p Exercisable at 30 September 229,460-207,115 - The weighted average fair value of options granted in the year was 371.0p (2013: 119.0p). For the options exercised, the average market price was 447.7p per share.

GOOCH & HOUSEGO PLC FINANCIAL STATEMENTS 69 For the year ended 30 September 2014 Share options outstanding at the end of the year have the following expiry dates and exercise prices: Expiry Exercise Number of date price per share options exercise share price option 2004 Scheme 22-Jul-2014 133.5p - 39,281 2010 VCP 6-Jan-2020 0.0p 219,527 897,397 2010 CSOP 6-Jan-2020 151.0p 9,933 79,464 2013 LTIP 8-Apr-2023 0.0p 260,939 178,960 490,399 1,195,102 The total charge for the year relating to share options was 360,710 (2013: 340,749), all of which related to equity-settled share based payment transactions. 16. RELATED PARTY DISCLOSURES In addition to duties performed in his role as a non-executive director Dr Peter Bordui has provided additional consultancy services at the request of the company. Fees during the year to 30 September 2014 amounted to 18,360 (2013: 17,520), at the balance sheet date the balance outstanding totalled 4,380 (2013: 4,380). The transactions are performed in the normal course of business on an arm s length basis and that the outstanding balance is unsecured. No other material contracts or arrangements have been entered into during the year, nor existed at the end of the year, in which a director or key manager had a material interest. The company has taken advantage of the exemption allowed under FRS 8 Related Party Disclosures not to disclose related party transaction with other group companies as consolidated financial statements in which the company is included are publicly available. 17. POST BALANCE SHEET EVENTS On 13 November 2014, the remaining 125,000 of deferred consideration in respect of the acquisition of Constelex Technology Enablers Limited was settled in the form of share capital. On 14 November 2014, the Company refinanced its debt facilities with the Royal Bank of Scotland. The Group now has a committed revolving credit facility of $15m and an uncommitted flexible acquisition facility of $20m available until 30 April 2019. Upon inception of the new facility, all existing RBS borrowings were repaid and $8m of the new revolving credit facility was drawn.

70 SHAREHOLDER INFORMATION GOOCH & HOUSEGO PLC Company Information NOMINATED ADVISER AND BROKER Investec Bank plc 2 Gresham Street London EC2V 7QP LEGAL ADVISERS Burges Salmon LLP One Glass Wharf Bristol BS2 0ZX INDEPENDENT AUDITORS PricewaterhouseCoopers LLP Chartered Accountants and Statutory Auditors 31 Great George Street Bristol BS1 5QD REGISTRARS Capita Registrars Limited The Registry 34 Beckenham Road Beckenham Kent BR3 4TU COMPANY SECRETARY AND REGISTERED OFFICE COMPANY SECRETARY REGISTER OFFICE Gareth J Crowe Dowlish Ford Ilminster Somerset TA19 0PF United Kingdom COMPANY NUMBER 00526832 EXPECTED FINANCIAL CALENDAR Annual General Meeting 26 February 2015 Final dividend for the year ended 30 September 2014 to shareholders on the register at close of 5 March 2015 business 18 December 2014. Subject to approval by shareholders at the Annual General Meeting Interim Results announced June 2015 Financial Year End 30 September 2015 Preliminary announcement of results for the year ended December 2015 30 September 2015 FOR FURTHER INFORMATION PLEASE CONTACT: Gooch & Housego PLC Gareth Jones / Mark Webster / Andrew Boteler 01460 256 440 Investec Bank plc (Nomad & Broker) Patrick Robb / David Anderson 020 7597 5970

GOOCH & HOUSEGO PLC SHAREHOLDER INFORMATION 71 Notice of Annual General Meeting NOTICE IS HEREBY GIVEN that the Annual General Meeting of the Company will be held at Dowlish Ford, Ilminster, Somerset, TA19 0PF on 26 February 2015 at 11.00 a.m. for the following purposes: To consider and, if thought fit, to pass the following resolutions as Ordinary Resolutions: 1 To receive the Annual Report and Accounts for the financial year ended 30 September 2014 together with the Directors Report and Auditor s Report thereon. 2 To receive and approve the Remuneration Committee Report set out on pages 32 to 36 (excluding page 33) of the Annual Report and Accounts for the financial year ended 30 September 2014 3 To declare a final dividend, as recommended by the Directors, of 4.6 pence per ordinary share for the financial year ended 30 September 2014. 4 To re-elect Gareth Jones as a Director. 5 To re-elect Mark Webster as a Director. 6 To re-elect Alex Warnock as a Director. 7 To re-elect Andrew Boteler as a Director. 8 To re-elect Paul Heal as a Director. 9 To re-elect Peter Bordui as a Director. 10 To re-appoint Messrs PricewaterhouseCoopers LLP as Auditors. 11 To authorise the Directors to fix the remuneration of the Auditors. 12 THAT the Directors of the Company be, and they are hereby, generally and unconditionally authorised in accordance with section 551 of the Companies Act 2006 (the Act ), in substitution for any existing authority to the extent unused, to exercise all the powers of the Company to allot shares in the Company or grant rights to subscribe for or to convert any security into shares in the Company on, and subject to, such terms as the Directors may determine. The authority hereby conferred shall, subject to section 551 of the Act, be for a period commencing on the date of the passing of this Resolution and expiring at the conclusion of the next Annual General Meeting of the Company or 26 May 2016 (whichever is the earlier) unless reviewed, varied or revoked by the Company in General Meeting and the maximum nominal amount of shares which may be allotted pursuant to such authority shall be 1,592,442 (representing approximately one third of the total ordinary share capital of the Company in issue at 2 December 2014). The Directors shall be entitled under such authority to make at any time prior to the expiry of such authority any offer or agreement which would or might require shares in the Company to be allotted after the expiry of such authority and the Directors may allot shares in pursuance of such offer or agreement as if such authority had not expired. To consider and, if thought fit, to pass the following resolutions as Special Resolutions: 13 THAT the Directors of the Company be, and they are hereby, generally and unconditionally empowered pursuant to section 570 of the Companies Act 2006 (the Act ), in substitution for any existing authority to the extent unused, to allot equity securities (as defined in section 560 of the Act) for cash pursuant to the authority conferred by Resolution 12 above as if section 561 of the Act did not apply to such allotment, provided that the power hereby conferred shall be limited to: (i) the allotment of equity securities in connection with an offer of securities, open for acceptance for a period fixed by the Directors, by way of rights to the holders of ordinary shares in proportion (as nearly as may be) to the respective numbers of ordinary shares held by them on a record date fixed by the Directors and subject to such exclusions or other arrangements as the Directors may deem necessary or expedient to deal with legal or practical problems under the laws of any overseas territory or the requirements of any regulatory body or any stock exchange in any territory or in connection with fractional elements or otherwise howsoever; and (ii) otherwise than pursuant to sub-paragraph (i) above, the allotment of equity securities up to an aggregate nominal amount of 477,733 (representing approximately 10 per cent. of the total ordinary share capital of the Company in issue at 2 December 2014), and the power hereby conferred shall expire at the conclusion of the next Annual General Meeting of the Company or 26 May 2016 (whichever is the earlier), save that the Company may before such expiry make an offer or agreement which would or might require equity securities in the Company to be allotted after such expiry and the Directors may allot equity securities in pursuance of such offer or agreement as if the power conferred hereby had not expired. 14 THAT the Company be and is hereby generally and unconditionally authorised for the purposes of section 701 of the Companies Act 2006 (the Act ) to make one or more market purchases (within the meaning of section 693(4) of the Act) of fully paid ordinary shares of 0.20 each in the capital of the Company on such terms and in such manner as the Directors may determine, provided that: (a) the maximum aggregate number of ordinary shares hereby authorised to be purchased is 2,388,664 (representing approximately 10 per cent. of the total ordinary share capital of the Company in issue at 2 December 2014); (b) the minimum price (exclusive of expenses) which may be paid for each ordinary share is 20 pence per share; (c) the maximum price (exclusive of expenses) which may be paid for each ordinary share shall not be more than 5 per cent. above the average of the middle market quotations for an ordinary share as derived from the AIM section of the London Stock Exchange Daily Official List for the five business days immediately preceding the date on which the ordinary share is contracted to be purchased; (d) unless previously renewed, varied or revoked, the authority hereby conferred shall expire at the conclusion of the next Annual General Meeting of the Company or 26 May 2016 (whichever is the earlier); (e) the Company may, pursuant to the authority hereby conferred, enter into a contract to purchase ordinary shares which would, will or might be executed wholly or partly after the expiry of such authority and the Company may make a purchase of ordinary shares in pursuance of such contract as if the authority conferred hereby had not expired. By order of the Board Gareth J Crowe Company Secretary 2 December 2014 Registered Office: Dowlish Ford, Ilminster, Somerset TA19 0PF Registered Number: 526832

72 SHAREHOLDER INFORMATION GOOCH & HOUSEGO PLC Notes 1 Explanatory note on Resolution 2: Resolution 2 is an advisory vote only. The Remuneration Committee Report is set out on pages 32 to 36 of the Annual Report and Accounts for the financial year ended 30 September 2014. Pages 32, 34, 35 and 36 of the Remuneration Committee Report set out the pay and benefits received by each of the directors for the year ended 30 September 2014. Page 33 sets out the Company s policy on remuneration and potential pay outs to directors in the future and is specifically excluded from the Resolution. 2 Resolutions 1 to 12 (inclusive) are proposed as Ordinary Resolutions. This means that for those resolutions to be passed, more than half of the votes cast on such resolutions must be in favour of such resolutions. Resolutions 13 and 14 are proposed as Special Resolutions. This means that for those resolutions to be passed, at least three-quarters of the votes cast on such resolutions must be in favour of such resolutions. 3 A member entitled to attend and vote at the meeting is entitled to appoint one or more proxies to exercise all or any of the member s rights to attend, speak and vote at the meeting (or any adjournment of the meeting). A proxy need not be a member of the Company. If a member appoints more than one proxy in relation to the meeting, each proxy must be appointed to exercise the rights attached to a different share or shares held by that member. If a member submits more than one valid proxy appointment in relation to the same share, the appointment received last before the latest time for receipt of proxies will take precedence. A member may only appoint a proxy in accordance with the procedures described in notes 4,5 and 6. 4 To appoint a proxy outside of the CREST system, a form of proxy is enclosed for use. To be valid, this form of proxy (and any power of attorney or other authority (if any) under which it is signed) must by duly completed and signed and sent to or deposited at the office of the Company s registrars, Capita Asset Services, Freepost RLUB-TBUX-EGUC, PXS 1, 34 Beckenham Road, Beckenham, Kent BR3 4ZF so as to be received not less than 48 hours before the time for holding the meeting (or any adjournment of the meeting). Completion of a form of proxy does not preclude a member from attending and voting in person at the meeting if that member so wishes. 5 To appoint as a proxy a person other than the Chairman of the meeting, a member must insert the proxy s full name in the box on the proxy form. If a member signs and returns a proxy form with no name in the box, the Chairman of the meeting will be deemed to be the member s proxy. Where a member appoints as a proxy someone other than the Chairman, the member is responsible for ensuring that the proxy attends the meeting and is aware of the member s voting intentions. If a member wishes a proxy to make any comments on the member s behalf, the member will need to appoint someone other than the Chairman and give them the relevant instructions directly. service provider(s) for assistance with appointing proxies via CREST. For further information on CREST procedures, limitations and system timings please refer to the CREST Manual. The Company or its Registrars may treat as invalid a proxy appointment sent by CREST in the circumstances set out in Regulation 35(5) (a) of the Uncertificated Securities Regulations 2001. In any case your Form of Proxy must be received by the Company s Registrars by no later than 11.00 a.m. on 24 February 2015. 7 A member which is a corporation is entitled to appoint one or more corporate representatives to exercise the same powers on behalf of the corporation as the corporation could exercise if it were an individual member. If a member which is a corporation appoints more than one corporate representative in relation to the meeting (or any adjournment of the meeting), each such corporate representative shall be entitled to exercise the same powers on behalf of that corporation as that corporation could exercise if it were an individual member, provided that if such persons purport to exercise those powers the same way, those powers shall be treated as exercised in that way, but if those persons purport to exercise those powers in different ways, those powers shall be treated as not exercised. In the case of a member which is a corporation, the proxy form must be executed under the corporation s common seal or signed on its behalf by a duly authorised officer of the corporation or an attorney for the corporation. 8 Pursuant to Regulation 41 of the Uncertificated Securities Regulations 2001, the Company specifies that only those members entered in the Company s register of members at 6.00 pm on 24 February 2015 shall be entitled to attend and vote at the meeting in respect of the number of shares registered in their names at that time. Changes in the Company s register of members after that time shall be disregarded in determining the rights of any person to attend and vote at the meeting. If the meeting is adjourned, the time which is 48 hours (disregarding any part of a day which is not a working day) before the time fixed for the adjourned meeting shall apply for the purpose of determining the entitlement of members to attend and vote at the adjourned meeting. 9 Copies of Directors service agreements and letters of appointment and the rules of the Company s share option schemes will be available for inspection at the registered office of the Company from the date of this Notice of AGM until the date of the meeting during normal business hours, and at the place of the meeting from 10.45 a.m. until its conclusion. 6 To appoint a proxy or to give or amend an instruction to a previously appointed proxy via the CREST system, the CREST message must be received by the issuer s agent by 11.00 a.m. on 24 February 2015. For this purpose, the time of receipt will be taken to be the time (as determined by the timestamp applied to the message by the CREST Applications Host) from which the issuer s agent is able to retrieve the message. After this time any change of instructions to a proxy appointed through CREST should be communicated to the proxy by other means. CREST Personal Members or other CREST sponsored members, and those CREST Members who have appointed voting service provider(s) should contact their CREST sponsor or voting

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Gooch & Housego PLC Dowlish Ford Ilminster Somerset TA19 0PF United Kingdom T +44 (0)1460 256440 F +44 (0)1460 256442 E plc@goochandhousego.com www.goochandhousego.com